In re Brisbin, Case No. 08-12236-SSC (Bankr.Ariz. 1/19/2010), Case No. 08-12236-SSC.
| Decision Date | 19 January 2010 |
| Docket Number | Adv. No. 08-ap-937.,Case No. 08-12236-SSC. |
| Parties | In re: GEOFFREY SCOTT BRISBIN and SHERYL LYNN BRISBIN, Chapter 7, Debtor. OLIVER HOLDINGS, INC., an Arizona Corporation, Plaintiff, v. GEOFFREY SCOTT BRISBIN AND SHERYL LYNN BRISBIN, Defendants. |
| Court | U.S. Bankruptcy Court — District of Arizona |
This matter comes before the Court on the Plaintiff's August 17, 2009 Motion for Summary Judgment ("Motion"). The Defendants filed a Response and Cross-Motion for Summary Judgment ("Cross-Motion") on October 5, 2009.1 On November 5, 2009, the Court held oral argument on both the Motion and Cross-Motion. At the conclusion of the hearing, the Court preliminarily found in favor of the Defendants, and stated that a Memorandum Decision would follow.
In this Memorandum Decision, the Court has now set forth its findings of fact and conclusions of law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure. The issues addressed herein constitute a core proceeding over which this Court has jurisdiction. 28 U.S.C. §§ 1334(b) and 157(b) (West 2009).
In May or June of 2005, Geoffrey Brisbin ("Brisbin") conceived a property development project which he called the 27 Dobbins Development Partners, LLC ("27 Dobbins") and for which he would seek investments for the purpose of developing real estate. In early or late July 2005, James Oliver ("Oliver"), principal of Oliver Holdings, Inc., obtained information related to the 27 Dobbins investment. It is not clear to the Court who made the first contact; however, at some point Brisbin provided Oliver with a notebook which contained the following documents: 1) Proposal for development of 40 residential lots; 2) City of Phoenix planning development statement; 3) Chicago Title Insurance Commitment; 4) Operating Agreement for 27 Dobbins; 5) CIT Soil Investigation; 6) Preliminary drainage report; 7) and a Certified Environmental Services packet. Ultimately, Oliver invested $150,000.00 in the 27 Dobbins Project.
On July 27, 2005, a Special Warranty Deed was recorded by Therrien Development, LLC ("Therrien") conveying certain real property to 27 Dobbins. In connection with the 27 Dobbins' purchase of the real property, Therrien financed a portion of the purchase price which was secured by a Deed of Trust recorded against the property on July 27, 2005 in the principal amount of $1,700,000.00. The Therrien deed of trust was released on July 28, 2006.
27 Dobbins entered into a loan transaction on August 18, 2005 with Ohio Savings Bank n/k/a AmTrust ("AmTrust") and granted a deed of trust against the real property and in favor of AmTrust in the principal amount of $1,900,010.00 ("First AmTrust Loan").
On November 15, 2006, 27 Dobbins entered into a new loan transaction whereby AmTrust loaned $4,160,000.00 (the "Land Loan") which was secured by a deed of trust, assignment of rents, security Agreement and fixture filing. AmTrust also agreed to loan 27 Dobbins $7,000,000.00 (the "Unit Construction Loan"). The Land Loan and Unit Construction Loan are collectively referred to as the "Second Amtrust Loan." This new loan transaction paid off the First AmTrust Loan. Thus, since the Therrien deed of trust had been released on July 28, 2006, the only consensual lien of record was the Second AmTrust loan in the original principal amount of $11,160,000. Prior to obtaining the Second AmTrust Loan, Brisbin offered to refund Oliver's membership interest in 27 Dobbins. Oliver rejected Brisbin's offer.
The Second AmTrust Loan contained a cross default provision relating to other development projects with which Brisbin was involved. AmTrust declared the Second AmTrust Loan in default as a result of the cross default provision on October 24, 2007. Brisbin was not in default concerning the other provisions of the Second AmTrust Loan. Nevertheless, AmTrust proceeded with a non-judicial foreclosure sale, or trustee's sale, pursuant to Arizona law, divesting 27 Dobbins of title to the real property.
The Defendants filed their Chapter 7 bankruptcy petition on September 12, 2008. The Plaintiff now seeks to have its investment in 27 Dobbins deemed nondischargeable.
The Plaintiff requests that its debt be excepted from discharge pursuant to 11 U.S.C. §§ 523(a)(2)(A). The Plaintiff argues that discharge is not appropriate in this case because the Defendants obtained the debt through fraud.2 According to the Plaintiff, Brisbin made various representations and omitted critical information, upon which the Plaintiff justifiably relied, resulting in the Plaintiff advancing Brisbin the sum of $150,000. Moreover, the Plaintiff relies, in part, on Arizona securities law as a predicate for Brisbin's liability. The Plaintiff alleges that the sale of membership interests in 27 Dobbins Development Partner, LLC constituted the sale of unregistered securities as defined by Arizona law.3 Therefore, according to the Plaintiff, the representations made by Brisbin were fraudulent pursuant to A.R.S. §44-1991(West 2009). Such fraudulent conduct, the Plaintiff argues, renders the $150,000 invested in 27 Dobbins a nondischargeable debt pursuant to Section 523(a)(2)(A).
The Court finds that based upon the totality of the circumstances, the Defendants' actions do not rise to the level of fraud contemplated in 11 U.S.C. §523 (a)(2)(A). Therefore, the Court finds that the Plaintiff's debt is discharged.
A motion for summary judgment should be granted if the movant has shown that there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Bankr.P. 7056(c). Ruling on a motion for summary judgment necessarily implicates that substantive evidentiary standard of proof which would apply at trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242 at 252, 106 S.Ct. 2505 at 2512, 91 L.Ed.2d 202 (1986). A material fact is genuine if the evidence is such that a reasonable jury could return a verdict in favor of the non-moving party. Id. Procedurally, "the proponent of a summary judgment motion bears a heavy burden to show that there are no disputed facts warranting disposition of the case on the law without trial." In re Aquaslide `N' Dive Corp., 85 B.R. 545, 547 (9th Cir. BAP 1987). Once that burden has been met, "the opponent must affirmatively show that a material issue of fact remains in dispute." Frederick S. Wyle P.C. v. Texaco, Inc., 764 F.2d 604, 608 (9th Cir. 1985).
The opponent may not assert the existence of some alleged factual dispute between the parties. Liberty Lobby, 477 U.S. 242, 252, 106 S.Ct. 2505 at 2512, 91 L.Ed.2d 202 Instead, to demonstrate that a genuine factual issue exists, the objector must produce affidavits which are based on personal knowledge, and the facts set forth therein must be admissible in evidence. Aquaslide, at 547. In addition, summary judgment must be used with care and restraint, Hutchinson v. United States, 677 F.2d 1322, 1325 (9th Cir. 1982), and is reviewed in the light most favorable to the non-moving party. Hifai v. Shell Oil Co., 704 F.2d 1425, 1428 (9th Cir. 1983).
The Plaintiff argues that pursuant to A.R.S. § 44-1801(26), the Plaintiff's membership interest in 27 Dobbins was an investment contract which constitutes a security.4 More specifically, the Plaintiff appears to argue that the Operating Agreement, provided to it at the time of its investment in 27 Dobbins, constituted the security. Section 44-1801(26) defines as a "security," inter alia, an "investment contract." The Defendants admit that 27 Dobbins was an investment contract, but deny it is a security under Arizona law.
Arizona courts have held that investment contracts are "securities" if a person: (1) invests money; (2) in a "common enterprise;" and (3) is led to expect profits solely from the efforts of the promoter or third party. S.E.C. v. W.J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100 (1946); Daggett v. Jackie Fine Arts, Inc., 152 Ariz. 559, 564, 733 P.2d 1142, 1147 (Ariz. App.1986); Nutek Information Systems, Inc. v. Arizona Corporation Commission, 194 Ariz. 104, 977 P.2d 826 (Ariz. App. 1998). In interpreting the term "investment contract" under the Arizona Securities Act, Arizona courts seek guidance from the federal courts, since the term is utilized with respect to the definition of a security under the Federal Securities Act of 1933 and the Securities and Exchange Act of 1934. Siporin v. Carrington, 200 Ariz. 97, 23 P.3d 92 (App. 2001).
According to the Plaintiff, Oliver invested $150,000 in a common enterprise between the Plaintiff, Brisbin,, and the other members of the 27 Dobbins, a limited liability company. The 27 Dobbins Operating Agreement detailed the formula for the allocation of profit from the project and precluded anyone other than the Manager and Assistant Manager from any participation in the management of 27 Dobbins. As such, the Plaintiff argues, investors such as himself could only expect to derive a profit from the venture solely from the efforts of others. Therefore, the investment contract entered into between the Plaintiff and Brisbin meets all of the elements under Arizona law to qualify as a security.
Arizona courts have held that membership interests in limited liability companies may constitute a security. Nutek Information Systems, Inc. v. Arizona Corporation Commission, 194 Ariz. 104, 977 P.2d 826 (Ariz. App. 1998). In Nutek Information Systems, the defendants were charged with violating Arizona securities in their marketing of membership interests in limited liability companies involved in telecommunications. Id. at 105. The issue before the court was whether membership interests in limited liability companies were, more specifically, investment contracts, as defined by the Act. The...
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