In re Davis

• Decision Date: 15 March 2000
• Docket Number: Bankruptcy No. 97-28235,Adversary No. 97-2410.,BAP No. UT-99-027
• Citation: 246 BR 646
• Parties: In re Todd D. DAVIS, Debtor. Philip J. Groetken, doing business as Phil Groetken Livestock, Plaintiff-Appellee, v. Todd D. Davis, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

246 B.R. 646 (2000)

In re Todd D. DAVIS, Debtor.

Philip J. Groetken, doing business as Phil Groetken Livestock, Plaintiff-Appellee, v. Todd D. Davis, Defendant-Appellant.

BAP No. UT-99-027, Bankruptcy No. 97-28235, Adversary No. 97-2410.

United States Bankruptcy Appellate Panel of the Tenth Circuit.

March 15, 2000.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

N. George Daines (Christopher L. Daines with him on the brief) of Barrett & Daines, Logan, UT, for Defendant-Appellant.

James C. Jenkins of Olson & Hoggan, P.C., Logan, UT, for Plaintiff-Appellee.

Before McFEELEY, Chief Judge, BOHANON, and ROBINSON, Bankruptcy Judges.

OPINION

ROBINSON, Bankruptcy Judge.

Debtor Todd Davis ("Davis") appeals the judgment of the bankruptcy court determining the debt owed Philip Groetken ("Groetken") was nondischargeable due to fraud under 11 U.S.C. § 523(a)(2)(A),¹ as well as imposing sua sponte sanctions in the form of attorney fees against both Davis and counsel under Fed. R. Bankr.P. 9011. The court also awarded costs to Groetken. For the reasons set forth below, we AFFIRM the court's finding of nondischargeability and award of costs. The appeal of Barrett & Daines is DISMISSED for lack of appellate jurisdiction. The order for sanctions and attorneys fees is remanded for further proceedings relative to Davis.

I. Background.

Davis and Groetken are cattle traders who primarily broker cattle for other parties. Davis did business from Utah, while Groetken operated out of Iowa. They had done business together since 1991. On several occasions, Davis left blank, signed checks at Groetken's office, authorizing Groetken to fill out the checks once the cattle he had purchased had been loaded and weighed and the price had been determined.

Sometime prior to May 24, 1993, Davis ordered 62 head of cattle from Groetken. Davis overnighted a blank, signed check to Groetken. At the time of shipment, with Davis's approval, Groetken's secretary filled in the blank check with the date (May 24, 1993), the payee (Groetken), and the amount ($44,496.00). The cattle were delivered to Davis on May 24, 1993. Groetken deposited the check on May 25, 1993, and it was returned for insufficient funds on or about May 27, 1993.

On May 26, 1993, Davis ordered an additional 127 head of cattle from Groetken. Groetken testified that he shipped the cattle upon Davis's promise that he would wire payment the next morning. The funds were not received. Davis told Groetken that he had in fact wired the funds, but they were mistakenly sent to the wrong recipient and he would take care of the matter. When this did not happen, Davis told Groetken that he would express mail the payment, which he also failed to do. Davis resold the 127 head of cattle, but failed to pay Groetken.

As a result of Davis's failure to pay, Groetken had to obtain a short-term loan from his bank to cover the NSF check and sign a note with the auction company from whom he purchased the cattle for the May 26, 1993 transaction. Groetken's bank also pulled his line of credit and no longer gave him immediate credit on checks deposited.

Groetken was able to collect partial payment from Davis totaling $76,496.00, leaving an unpaid principal balance of $59,160.06. Payments received on June 30, 1993 ($14,496.00), and July 14, 1993 ($30,000), equaled the amount owed on the May 24, 1993 transaction. In March 1994, Groetken initiated an action in Utah State Court against Davis alleging Davis had defrauded him. Davis filed bankruptcy prior to trial of that matter.

In the bankruptcy proceeding, Groetken filed a complaint to determine dischargeability pursuant to § 523(a)(2)(A). At trial, Davis justified his failure to pay Groetken as "playing the float," whereby he would buy cattle with a personal check with the intent to cover that check by depositing the buyer's check before the earlier check arrived. Davis contended he was caught short when Cache Valley Bank unilaterally decided not to honor checks drawn on uncollected funds, and the check to Groetken was returned NSF.

Cache Valley Bank, represented by the law firm of Barrett & Daines, also filed a dischargeability complaint against Davis alleging he had given the bank a false financial statement and committed fraud. The parties settled this action with a stipulation of nondischargeability in excess of $100,000.00. After the settlement of the Cache Valley Bank Action, Barrett & Daines entered their appearance as co-counsel with Steven Jewell in representing Davis in the Groetken matter. Davis expressly waived any conflict. At trial, Groetken attempted to admit into evidence the bank's adversary complaint file. Davis objected on the grounds it was prejudicial and constituted unfair surprise. The bankruptcy court noted a potential conflict of interest, and took judicial notice of the file, relevant to Davis's intent.

During the trial, Groetken's counsel informed the bankruptcy court that he had brought an attorney's fee affidavit and was prepared to file it after the court rendered its decision. At the close of evidence, the court invited counsel to file the affidavit and "use that in your argument." The court ruled that the debt to Groetken was nondischargeable due to fraud. The court further found that counsel for Davis had asserted a frivolous defense and assessed attorney fees pursuant to Rule 9011 against Davis and his counsel in the amount of $10,071.96, the full amount set forth in the affidavit. The court stated that, because of counsel's dual representation of Davis and Cache Valley Bank, counsel could not have allegiance to the bank in the collection of the nondischargeable judgment while providing a defense in Davis's best interest. The court also chastised Davis for arguing that the funds were not owed to Groetken, but rather the livestock company from which Groetken purchased the cattle at auction.

At the direction of the bankruptcy court, counsel for Groetken submitted proposed findings of fact and conclusions of law as well as a certificate of costs in the amount of $4,520.06. The court entered the findings and judgment over Davis's apparent objection, which is not in the record on appeal. This appeal followed.

II. Appellate Jurisdiction.

This Court, with the consent of the parties, has jurisdiction to hear timely-filed appeals from "final judgments, orders, and decrees" of bankruptcy courts within the Tenth Circuit. 28 U.S.C. § 158(a)(1), (b)(1), and (c)(1). Under this standard, we have jurisdiction over this appeal. The parties have consented to this Court's jurisdiction in that they have not opted to have the appeal heard by the United States District Court for the District of Utah. Id. § 158(c); 10th Cir. BAP L.R. 8001-1(a) and (d). The appeal was filed timely by the Debtor, and the bankruptcy court's order is "final" within the meaning of § 158(a)(1). See Fed. R. Bankr.P. 8001-8002.

III. Standard of Review.

The Bankruptcy Appellate Panel may affirm, modify, or reverse a bankruptcy court's judgment, order, or decree, or remand with instructions for further proceedings. Fed. R. Bankr.P. 8013. "For purposes of standard of review, decisions by judges are traditionally divided into three categories, denominated questions of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of discretion (reviewable for `abuse of discretion')." Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988).

The issue of dischargeability of debt is a question of federal law, not state law, and is governed by the provisions of the Bankruptcy Code. Grogan v. Garner, 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). A finding of whether a requisite element of a § 523(a)(2)(A) claim is present is a factual determination reviewed for clear error. See Anastas v. American Sav. Bank, 94 F.3d 1280, 1283 (9th Cir.1996). A finding of fact is clearly erroneous only if the court has "the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).

"It is the responsibility of an appellate court to accept the ultimate factual determination of the fact-finder unless that determination either (1) is completely devoid of minimum evidentiary support displaying some hue of credibility, or (2) bears no rational relationship to the supportive evidentiary data." Krasnov v. Dinan, 465 F.2d 1298, 1302 (3d Cir. 1972).

Gillman v. Scientific Research Prods. (In re Mama D'Angelo, Inc.), 55 F.3d 552, 555 (10th Cir.1995).

In reviewing an imposition of Fed. R. Bankr.P. 9011 sanctions, the appellate court must apply an abuse of discretion standard. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990); Masunaga v. Stoltenberg (In re Rex Montis Silver Co.), 87 F.3d 435 (10th Cir.1996). The standard of review for an award of costs to the prevailing party is also abuse of discretion. Jones v. Unisys Corp., 54 F.3d 624 (10th Cir.1995).

IV. Discussion.

A. Section 523(a)(2)(A).

To prevail on a nondischargeability claim under § 523(a)(2)(A),² a creditor must prove by a preponderance of the evidence that:

1) the debtor made a false representation;

2) the debtor had the intent to deceive the creditor;

3) the creditor relied on the debtor\'s conduct;

4) the creditor\'s reliance was justifiable; and

5) the creditor was damaged as a proximate result.

See Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373 (10th Cir.1996) (elements of § 523(a)(2)(A)); see also Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995) (creditor's reliance must be justifiable, but not necessarily reasonable); Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (creditor must prove elements by a preponderance of the evidence). The discharge provisions of § 523 will be strictly construed against the creditor and liberally construed in favor of the...