In re Bowden, Bankruptcy No. 04-71570-SCS.

CourtUnited States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
Citation326 B.R. 62
Decision Date18 March 2005
Docket NumberBankruptcy No. 04-71570-SCS.,Adversary No. 04-7100-SCS.
PartiesIn re C. Earl BOWDEN, Jr., Debtor. CDR Robert C. Elrod, USNR, Plaintiff, v. C. Earl Bowden, Jr., Defendant.

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326 B.R. 62
In re C. Earl BOWDEN, Jr., Debtor.
CDR Robert C. Elrod, USNR, Plaintiff,
C. Earl Bowden, Jr., Defendant.
Bankruptcy No. 04-71570-SCS.
Adversary No. 04-7100-SCS.
United States Bankruptcy Court, E.D. Virginia, Norfolk Division.
March 18, 2005.

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Ellen C. Carlson, Roussos, Langhorne and Carlson, P.L.C., Norfolk, VA, for Debtor.

Peter G. Zemanian, Zemanian Law Group, Norfolk, VA, for Plaintiff.


STEPHEN C. ST. JOHN, Bankruptcy Judge.

This matter came on for trial on November 9, 2004, on the Plaintiff's Complaint to Determine Dischargeability of Debt under Sections 523(a)(2)(A) and 523(a)(2)(B) of the United States Bankruptcy

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Code.1 At the conclusion of the trial, the Court took this matter under advisement. The Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 157(b)(2) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409. Upon consideration of the evidence and arguments presented by counsel at the trial and of the pleadings submitted by each party, including the stipulations of fact submitted by the parties, the Court makes the following findings of fact and conclusions of law.


The Defendant/Debtor, C. Earl Bowden, Jr., ("Bowden") is a professional realtor and associate broker. Tr. at 109-10. The Plaintiff, Commander Robert C. Elrod, USNR, ("Elrod"), became acquainted with Bowden in 1995 when Bowden served as the real estate agent for Elrod and his wife, Shannon. Elrod was referred to Bowden by a friend of Elrod's who had also used Bowden as his real estate agent. Tr. at 4, 39, 110. Elrod testified that, throughout the time that he has known Bowden, he has always viewed him as his realtor. Tr. at 38.

In the years between the purchase of his home and the transaction at issue, Elrod had occasional contact with Bowden. Tr. at 18. Elrod testified that Bowden "initiated and arranged two investment opportunities" with former clients of Bowden's, one in 1995, and the other in 2000. Tr. at 4, 12, 18. These transactions occurred because Bowden mentioned, in the course of his service as Elrod's real estate agent,

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that he occasionally had investment opportunities in the form of loan transactions, and Elrod expressed interest in participating in these types of transactions. Bowden testified that Elrod mentioned that Elrod made investments in the stock market. Elrod stated that he may have mentioned investments in mutual funds, but did not recall mentioning stock investments. Tr. at 12, 110-11, 126, 137. Elrod testified that he was only interested in low-to-no risk investments and would have never expressed interest in a high risk investment. Tr. at 137. He was unable to recall whether he mentioned to Bowden that he was interested in high return investments. Tr. at 138. Elrod also testified that on one occasion, Bowden invited he and his wife to a social gathering at his house, but that they did not attend. Elrod and his wife would also sporadically call Bowden to inquire as to the state of his health. Tr. at 18.

Bowden did not participate in the two investment transactions, but rather "just arranged the deal." Bowden also had the paperwork drafted. Tr. at 12, 138. Both of these transactions were similar to each another in that the loans by Elrod were secured by a deed of trust on the respective real estate involved in the particular transactions, and Elrod visited the properties serving as security. Tr. at 13, 15, 20, 30, 35. Bowden did not receive any commission or compensation as a result of these transactions. Tr. at 40, 112. Elrod further stated that he did not ask either of the other parties involved in those transactions for any financial statement, but that if Bowden had advised him to do so, he would have. He stated that "I was going on [Bowden]'s advice and guidance that these were sure wins." Tr. at 137.

Approximately five to seven days prior to December 23, 2002, Elrod received a telephone message from Bowden, in which Bowden stated that he had an investment opportunity to discuss with Elrod. Elrod spoke to Bowden on the telephone on December 22, 2002. Tr. at 5-6, 19. According to Elrod, Bowden told him that he needed the money because he was "arranging a deal on some real estate for another client and that approximately $20-to $25,000 was needed in short order to be able to pull the deal together." Tr. at 6; see also Tr. at 20. Elrod specifically testified that Bowden never told him that he needed the money to cover personal obligations, nor did Bowden ever intimate that he was in financial distress. Had Bowden so stated, Elrod testified that this would have affected his decision to lend money to Bowden. Tr. at 7,9-10. When questioned by counsel for Bowden, Elrod testified that Bowden did not make any written financial representations either about his assets, his liabilities, or his income. Tr. at 28-29. Bowden confirmed that he never tendered a personal financial statement with regard to his income, expenses, assets, or liabilities to Elrod, nor did Elrod request such statements. Tr. at 121, 125.

Bowden elaborated on the circumstances that brought him to ask Elrod for money. His mother passed away in October, 2002, and his real estate commissions were not coming in as he had expected. Tr. at 114. When he spoke to Elrod, Bowden testified, contrary to Elrod's statements, that he told Elrod that he needed the money for "personal debt, personal use." Tr. at 41, 114. Specifically, Bowden stated that "I made it clear that I was in personal trouble, that I needed personal funds for personal debt and personal use." Tr. at 40. Bowden did not "know how much detail [he] went into, but it was clear that this was a different type of loan. This was a personal loan." Tr. at 41. Bowden testified he did not tell Elrod the severity of his financial circumstances. At the time he approached Elrod, Bowden testified

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that his financial problems were not "as severe as it ultimately ended up being." Tr. at 59. Along these lines, he stated that "It's not my habit to discuss in great detail my financial situation with anyone." This included his tax liens and his obligations to Peter Suprenant and Gabriel & Company. Tr. at 130. Bowden testified that there was no reference to a third-party transaction other than that which is contained in the Note. Tr. at 41. However, Bowden later testified that "I'm sure I implied that I need it for personal reasons" and not for a business transaction. Tr. at 129.

On December 23, 2002, Bowden and Elrod met at Elrod's house. At that time, Bowden executed a promissory note in favor of Elrod in the amount of $25,000.00 ("Note"). The Note provides, among other things, that Bowden would repay to Elrod the sum of $27,500.00 on or before February 23, 2003. Pl.Ex. 10. The Note also provides:

The indebtedness evidenced by this Note is secured by the proceeds to be distributed from any transaction concerning the Makers [sic] residence, located at 582 W. Ocean View Ave. Norfolk, Va. 23503 or any proceeds resulting from the property located at 1000 E. Ocean View Ave. Norfolk, Va. 23503., (AKA/9710 Chesapeake St.) the Makers [sic] place of business. The settlement agent, Advance Title and Abstract, is hereby instructed to pay this note from the first of the above transactions.

Id. This document was prepared by Bowden. Tr. at 7, 41. That same day, Elrod remitted two checks dated December 23, 2002, and payable to Bowden, one in the amount of $15,000.00 and the other in the amount of $10,000.00. Pl.Ex. 11.

Elrod also testified as to discussions he had with Bowden regarding Bowden's assurances of repayment. Elrod testified that "[t]he only way I would have gotten into this loan and also with the previous other two loans is if I was assured that there was security and collateral to cover the loan in case it could not be paid." Tr. at 8; see also Tr. at 10. According to Elrod, he understood that Bowden was giving as security for the loan his residence and his real estate place of business; Elrod stated he "wouldn't have done the loan without that." Tr. at 8. Elrod further testified that "[i]t was explained to me that this was security if he could not pay off this debt, that these would be the collateral that I could go after or foreclose on to generate money that would pay back the note, which was the same thing that we had arranged for the prior two loans." Tr. at 24.

Bowden testified to the contrary. According to Bowden, the references to the properties located at 582 West Ocean View Avenue and 1000 East Ocean View Avenue were included "[b]ecause it was clearly written that the repayment was to come from the proceeds from transactions related to either of these properties." Bowden had contracts on the 582 West Ocean View Avenue property, to which he held the power of attorney from the sole heir (his son) in order to conduct transactions regarding that property, and that he "listed 1000 East Ocean View as a ... bonus, an extra source of funds." Tr. at 42. Bowden stated he "had no reason to believe [the contracts] were not going to close." Tr. at 116. Bowden testified that he executed the $25,000.00 Note with repayment due in two months because he "had full intent on it being able to happen.... [T]hese are more personal friends, more personal clients than the average people. I would never intend on hurting them. If I didn't think I could have repaid it, I would never have made the statement." Tr. at 115-16. Bowden affirmatively stated

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that he did not deceive Elrod nor did he intend to deceive him, but instead, that he intended to repay Elrod from the proceeds from the transaction regarding 582 West Ocean View Avenue. Tr. at 122.

According to Elrod,...

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