Horizon Fin. Bank v. Borstad (In re Borstad)
| Decision Date | 29 April 2016 |
| Docket Number | Bankruptcy No.: 15–30013,Adversary No.: 15–07008 |
| Citation | 550 B.R. 803 |
| Parties | In re: Dean J. Borstad, Debtor. Horizon Financial Bank, Plaintiff, v. Dean J. Borstad, Defendant. |
| Court | U.S. Bankruptcy Court — District of North Dakota |
Michael Gust, Anderson, Bottrell, Sanden & Thompson, Fargo, ND, for Plaintiff.
Roger J. Minch, Serkland Law Office, Fargo, ND, for Defendant.
SHON HASTINGS
Plaintiff Horizon Financial Bank filed a Complaint seeking denial of Debtor/Defendant Dean J. Borstad's bankruptcy discharge under 11 U.S.C. § 727(a)(2)
, (a)(3) and (a)(4). Specifically, Horizon alleges Debtor fraudulently transferred property within one year of his bankruptcy, failed to keep or preserve records from which his financial condition can be ascertained and made a false oath or account by undervaluing or failing to disclose assets in his petition and at the meeting of creditors.
Alternatively, Horizon seeks a determination that Debtor's debt to Horizon is excepted from discharge under 11 U.S.C. § 523(a)(2)
and (a)(6). Horizon alleges Debtor fraudulently obtained money and an extension of credit using a written financial statement that he knew was false and on which Horizon relied. Horizon also alleges Debtor willfully and maliciously injured Horizon by using the loan proceeds for personal expenses knowing it would leave him unable to repay his debt.
In his Answer, Debtor denied the allegations.
This adversary action is a core proceeding under 28 U.S.C. § 157(b)(2)(J)
. The Court has jurisdiction under 28 U.S.C. §§ 1334 and 157 and has authority to enter a final order in this matter. This opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
For the reasons that follow, Horizon's claims and causes of action are dismissed.
Debtor farmed near Cando, North Dakota, from 1989 to 2013. Like many farmers, Debtor swapped services and shared equipment with other farmers. For example, Debtor and Darin Weisz, who have known each other since 1999, exchanged farming services such as spraying, seeding and combining over the years. They also exchanged parts, seed, tools, equipment, materials and more. Debtor and Weisz also jointly owned an anhydrous applicator and a bat-wing mower. Weisz had possession of the applicator and mower the entire time Debtor and Weisz owned them. According to a hand-written accounting prepared by Debtor summarizing all of their debts, Weisz owed Debtor a total of $71,940, and Debtor owed Weisz a total of $85,250. Offsetting the debts, Debtor owed Weisz $13,310. To settle this debt, Debtor transferred his half interest in the mower (valued at $7,000) and his half interest in the anhydrous applicator (valued at $6,500) to Weisz in early 2015. Although the two discussed creating an accounting for years, they finally “cleared up” their claims and debts in early 2015 because Weisz was “looking out for himself” after Debtor's divorce.1
Similarly, Ryan Miller combined for Debtor in 2007. Debtor gave Miller a cultivator worth $1,200 in exchange for his work. Another time, Miller harvested sunflowers for Debtor, who repaid this obligation by swathing for Miller. In the fall of 2013, Miller again combined for Debtor, and Debtor gave Miller and Miller's brother his one-third interest in a spreader that the three of them owned together.
Debtor owned a house in Cando, valued at $35,000. In 2010, Debtor and his farmhand, Jeremiah Masterson, agreed that if Masterson worked for Debtor for four years, Debtor would give Masterson the house in exchange for his work. Debtor transferred the house to Masterson in 2014.
Over the years,2 Horizon granted numerous loans to Debtor for varying amounts and purposes ranging from the purchase of equipment to general operations. Debtor's 2013 farm operating loan, in particular, is central to the dispute in this case.
Debtor did not submit a written loan application for his 2013 operating loan. Rather, Bryan Anderson,3 Debtor's principal contact and loan officer at Horizon since approximately 2000, prepared the documentation for the loan. Debtor met Anderson at Horizon on February 2, 2013, to prepare the documentation for his 2013 operating loan. Specifically, Anderson prepared a balance sheet, collateral analysis, risk report and executive summary using FINPACK.4
At trial, Anderson explained the process for generating the balance sheet. Together, Anderson and Debtor updated Debtor's balance sheet for Horizon's use in considering his request for a 2013 operating loan. The balance sheet includes a list of machinery and equipment. FINPACK carries forward the data from the previous year unless Anderson deletes or changes it. Anderson adds any new items each year. He testified that lenders routinely rely on the balance sheet in extending agricultural credit because it gives them a level of confidence that the borrower has the financial ability to repay the loan.
Debtor brought notes to their meeting,5 and Anderson entered the numbers into the computer and compiled an updated balance sheet. According to Debtor, he and Anderson “went through some numbers.” Anderson asked Debtor for estimates on prepaid expenses and crop inventory. Debtor claimed Anderson told him, “We can bring some of these numbers up and we can bring some down.” Debtor stated this was so that the numbers would “look good for the bank.” Debtor understood this to mean that they could adjust the numbers “so that the ratio turned out right so that [Anderson] could make the loan.” He recalled Anderson stating, “We'll see how the numbers work out.” Debtor also testified that he is not claiming that Anderson told Debtor to change the numbers. Anderson disputed Debtor's allegation that Anderson told Debtor he could adjust the figures on the balance sheet, testifying that he told Debtor nothing about the figures on the balance sheet.
Debtor reviewed the balance sheet before signing and dating it on February 2, 2013. Debtor's 2013 balance sheet listed a net worth of $2,042,227. His assets totaled $3,744,745. Horizon did not independently verify any of the information on the balance sheet.
At trial, Anderson testified that he subsequently learned that some of the information in Debtor's 2013 balance sheet was not accurate because of equipment and grain inventory “discrepancies.” Anderson never doubted Debtor's information prior to 2013 or had reason to believe it was inaccurate. Consistent with this testimony, Anderson's comment sheet, discussed below, contains no mention of any problem with Debtor's financial information.
Debtor acknowledged a number of errors and omissions on the balance sheet. Specifically, Debtor's 2013 balance sheet included the house in Cando valued at $35,000. Although Debtor owned the house in 2013 when the balance sheet was generated, the balance sheet did not show the liability to Masterson. The balance sheet also included a Cessna airplane valued at $2,500 that Debtor no longer owned in 2013. Additionally, the balance sheet listed $50,000 in miscellaneous tools and two welders. Debtor testified that he never owned $50,000 of tools and welders.6 The balance sheet also listed three antique John Deere tractors, each valued at $8,000.7 Debtor claims he gave the tractors to his children as gifts, and the tractors should not have been included on his balance sheet.8 The balance sheet also included a fourth John Deere tractor, valued at $4,500, which Debtor no longer owned. The balance sheet included a $40,000 account receivable owed by Darin Weisz, but does not include an account payable owed from Debtor to Weisz.
The 2012, 2013 and 2014 balance sheets also include crop inventory.9 During its examination of Debtor at trial, Horizon highlighted the crop inventory reported on the 2012 balance sheet by adding these figures to the 2012 and 2013 crop production estimates10 he reported to Rural Community Insurance Company (RCIS) and comparing this data to delivery sheets and payment summaries showing the 2012 and 2013 crops Debtor sold. In the “Borstad Crops Accounting Production and Sales Summary” Horizon prepared for demonstrative purposes, Horizon suggested that the crop inventory on the 2012 balance sheet (which represented 2011 crop yield that had not yet been sold on the date of the financial statement) added to production estimates Debtor reported to RCIS totaled less than the total pounds and bushels he sold in 2012 and 2013.11 The summary, supported by underlying data, showed that the bushels of barley listed on the 2012 balance sheet added to barley bushels Debtor reported to RCIS in 2012 exceeded the barley he sold in 2012 and 2013 by 7,965.70 bushels. Wheat bushels reported on the 2012 balance sheet added to wheat bushels Debtor reported to RCIS in 2012 and 2013 exceeded wheat he sold in 2012 and 2013 by 11,143.94 bushels. Soybeans listed on the 2012 balance sheet added to soybean bushels Debtor reported to RCIS in 2012 and 2013 exceeded the soybeans he sold in 2012 and 2013 by 15,173.95 bushels. Canola reported on the 2012 balance sheet added to pounds of canola Debtor reported to RCIS in 2012 exceeded canola he sold in 2012 and 2013 by 749,423 pounds.
Debtor responded to this information by highlighting his 2011 crop sales, suggesting that while Horizon included 2011 crop production (or at least the part of 2011 yield included in inventory), it did not consider 2011 crop sales. Debtor maintains that Horizon's arguments and demonstrative exhibit did not account for Debtor's sale of some of his 2011 crops in 2012 or 2012 crops in 2013. According to the figures Debtor highlighted, supported by underlying data, the barley bushels he sold in 2011, 2012 and 2013 exceeded barley inventory reported on the 2012 balance sheet and production estimates he reported to RCIS in 2012 by 12,177.8 bushels. Wheat bushels Debtor sold in 2011, 2012 and 2013 are less than wheat...
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