In re Kudla
| Decision Date | 13 October 1989 |
| Docket Number | Bankruptcy No. 88-B-03064-J,Adv. No. 88-A-0929. |
| Citation | 105 BR 985 |
| Parties | In re Michael J. KUDLA, Debtor. Donald M. KARTCHNER, Plaintiff, v. Michael John KUDLA, Defendant. |
| Court | U.S. Bankruptcy Court — District of Colorado |
Patricia K. Kelly, Duitch, Johnson & Ogawa, P.C., Colorado Springs, Colo., for plaintiff.
Michael John Kudla, Longmont, Colo., pro se.
On March 15, 1988 the Debtor, Michael John Kudla ("Kudla" or "Defendant" herein), filed a bankruptcy Petition under Chapter 7 of the Bankruptcy Code in this Court. On October 28, 1988, the Plaintiff, Donald M. Kartchner ("Kartchner" or "Plaintiff" herein), filed an adversary proceeding pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6), to except Plaintiff's $100,000.00 claim from discharge. A trial was held before this Court concluding on August 1, 1989. At the close of the Defendant's case, this Court granted the Defendant's Motion for a Directed Verdict pursuant to 11 U.S.C. § 523(a)(6), but denied the Defendant's Motion for a Directed Verdict under 11 U.S.C. § 523(a)(2)(A) and (a)(4).
1. Defendant Kudla was, during all times pertinent to this case, an attorney registered to practice and practicing law in the State of Colorado.
2. Plaintiff Kartchner was a developer, contractor and investor located in California. In the spring of 1982, Kartchner desired to obtain loans for business purposes and was seeking loan funds and a lender for that reason.
3. David R. Larsen ("Larsen" herein) worked as Plaintiff's representative and sometimes agent for investigating loan and/or investment opportunities. On April 20, 1982, Plaintiff gave Larsen a limited power of attorney to act on Plaintiff's behalf to enter into loan transactions.
4. Ronald Madsen ("Madsen" herein), was an individual who worked out of Salt Lake City, Utah with persons interested in finding loan funds and capital. In this case, he worked with Larsen, Plaintiff's agent, and Bill Kennedy of Denver, Colorado ("Kennedy" herein) in Plaintiff's efforts to obtain loan funds. While Madsen testified that he was also an agent for Plaintiff in negotiating the financial transactions in this case, Plaintiff denied that Madsen was ever his agent. Madsen acknowledged that he did not have a power of attorney from Kartchner.1
5. Kennedy held himself out as an individual who could arrange and secure large amounts of funding, loans or capital, for borrowers and businessmen. He was introduced to the Plaintiff's agent, Larsen, by Madsen. Kennedy offered to acquire substantial loan funds for Kartchner in what can be characterized as a confusing transaction, at best, and an incomprehensible, unworkable scheme, at worst. While in 1982 Kennedy was undertaking with the Plaintiff the proposed loan transaction described herein, he was concurrently undertaking similar transactions with several other potential borrowers. Kennedy never testified at trial and no witnesses, particularly his former business associates Madsen and Defendant Kudla, could identify his current location or business. Kennedy just "disappeared" from Colorado.
6. Larsen communicated with and then met with Kennedy in Denver. Kennedy informed Larsen that substantial loan funds, perhaps $5,000,000.00, could be obtained for Kartchner if he, Kartchner, would purchase annuities with $100,000.00 to partially collateralize the loan.
7. Kennedy owned and/or controlled, and was an officer of, Uni-European Services of Colorado, Inc., a Colorado corporation ("Uni-European"). Uni-European was represented to be the organization which would actually obtain the loan proceeds and/or process the loan transaction. At the request and direction of Kennedy, Kudla established and became registered agent for Uni-European in early 1982. Kudla at all pertinent times served as attorney for Kennedy and Uni-European.
8. Larsen, Kennedy and Madsen, at various times, discussed a mechanism to transfer Plaintiff's $100,000.00 to purchase annuities and the use of an "escrow agent" to facilitate the transaction. Kennedy suggested Defendant Kudla as the escrow agent after Plaintiff Kartchner expressly rejected as unacceptable the original recommended escrow agent. Larsen contacted Kartchner who agreed that Kudla could act as escrow agent in this transaction due to the fact that he, Kudla, was a licensed attorney.
9. On May 24, 1982, Larsen and Madsen met with Kennedy to finalize the proposed transaction. In the Amended Escrow Instructions, it is stated:
The Amended Escrow Instructions, appended to the Escrow Instructions, were signed by Bill W. Kennedy, David R. Larsen, and Don M. Kartchner. On the face of the Amended Escrow Instructions was the handwritten notation and signature of Defendant Kudla:
Received on deposit May 24, 1982, $100,000 and a copy of this amended escrow instructions M.J. Kudla.
Kudla acknowledged receiving the $100,000.00 from Kartchner and signing the Amended Escrow Instructions instrument.2 Unrebutted testimony indicates that Kudla subsequently assured Larsen and Kartchner that Plaintiff's funds were in his account and "were safe."
10. Kudla accepted Kartchner's $100,000.00 wired into his account identified as "Michael J. Kudla—Trustee Account," numbered 47-1003, located at First National Bank of Longmont ("Trustee Account" herein). Extensive unrebutted testimony shows that commingled in the same Trustee Account were additional sums deposited by (a) James Westford on May 20, 1982 and June 4, 1982 in the sum of $100,000.00, (b) C & H Escrow Company for Mr. Koon on June 4, 1982 in the sum of $50,000.00, and (c) Mr. Rickey on June 7, 1982 in the sum of $450,000.00. The testimony indicated that these individuals were involved in the same type of transactions with Defendant Kudla and Kennedy, as was Plaintiff Kartchner.3
11. Defendant was not able to produce and cogently explain the complete general ledger or account statements of his Trustee Account and testified that he apparently had lost certain of his records. What Defendant Kudla submitted (or more accurately made available) was an incomplete, handwritten deposit and withdrawal ledger and some cancelled checks from his Trustee Account. Kudla's own records were brief, sometimes illegible, confusing, and at times, not comprehensible.4
12. Thomas L. Harkness, C.P.A., ("Harkness" herein) was accepted by the Court as an expert in asset tracing and explained many of the transactions which occurred in Kudla's Trustee Account. It was unrebutted that checks were drawn on Kudla's Trustee Account to pay obligations for Kudla's swimming pool, to purchase an automobile for Kudla, and to disburse or "loan" substantial sums of money to Kudla and his wife. Harkness testified that according to his analysis, Defendant used at least $106,000.00 from the Trustee Account for his and his wife's personal obligations, that Defendant gave Kennedy the sum of $97,452.49, and that Defendant had taken $250,000.00 to purchase a certificate of deposit in Defendant's own name.5
13. There was lengthy but confusing and conflicting evidence as to the ultimate disposition of the specific $100,000.00 deposited by Kartchner in Kudla's Trustee Account. That is understandable as all funds were commingled. Significantly, however, Kartchner never received his loan funds or his $100,000.00 back from Kudla.6
14. Defendant Kudla argued that Kennedy and Uni-European were the actual escrow agents. That argument is wholly without merit. It was Kudla who held the funds in his Trustee Account, and it was Kudla who served as the recipient and receipted for the funds. Kudla was the licensed attorney who acknowledged receipt of and presumably understood the Amended Escrow Instructions. The credible evidence overwhelmingly targets Kudla as the individual responsible for holding and not disbursing the funds until successful conclusion of the loan transaction. The written documents and the credible testimony reinforce the proposition, and the Court finds, that Defendant Kudla was the escrow agent and the party on whom Plaintiff Kartchner relied to be the escrow agent. Kennedy and/or Uni-European were, at best, the loan broker(s) who were to put the loan funds together and conclude the loan transaction.
15. There is no credible evidence that Kennedy ever effected or otherwise successfully concluded a single loan transaction, with or without the assistance of Kudla, despite a number of similar transactions undertaken by him.7
16. A three-day trial on this matter was held in state court in Utah in 1987. At the conclusion of that trial, that Court determined that it did not have jurisdiction, and no judgment was entered.
17. Kennedy was the architect who designed and was the person responsible for implementing this transaction with Kartchner and several similar transactions undertaken concurrently by Kennedy, Kudla and other potential borrowers. Kudla, however, was the engineer who made it work and, as an attorney on whom others relied including Plaintiff Kartchner, he gave the transaction an appearance of legitimacy and propriety. Both persons were instrumental in Kartchner's transaction. While Kennedy was the purported boss, Kudla was a willing, knowing and self-serving participant. Kartchner's transaction, standing alone or in the context of the other transactions, appears to be the product of a scam.8
The Court must narrowly construe exceptions to discharge against...
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