In re Mayer
| Decision Date | 31 October 1994 |
| Docket Number | No. 94 C 3442.,94 C 3442. |
| Citation | 173 BR 373 |
| Parties | In re John E. MAYER, a/k/a John E. Mayer and Associates, and Deborah Jean Mayer, Debtors. BANK ONE-ROCKFORD, N.A., Plaintiff-Appellee, v. John MAYER and Deborah Mayer, Defendants-Appellants. |
| Court | U.S. District Court — Northern District of Illinois |
Gloria E. Block, Chicago, IL, for plaintiff-appellee.
Kenneth A. Michaels, Jr., Chicago, IL, for defendants-appellants.
John and Deborah Mayer (individually "John" and "Deborah" and collectively "Mayers") have appealed from an April 21, 1994 Revised Judgment Order (the "Order") entered by Bankruptcy Judge Eugene Wedoff in an adversary proceeding brought by Bank One — Rockford, N.A. ("Bank One") in the Bankruptcy Court for this District.1 For the reasons stated in this memorandum opinion and order, the Order is affirmed.
In December 1987 Bank One loaned Mayers $136,552 to purchase the Bess Hotel, a hotel for transients in downtown Rockford, Illinois. Mayers executed a note secured by a mortgage on the property, promising to repay the loan plus interest in monthly installments. Both the note and mortgage specified that in the event of default Mayers would pay all reasonable attorneys' fees and other costs incurred by Bank One in collecting the outstanding debt.
Mayers quickly fell behind in their payments, and in December 1988 Bank One instituted a foreclosure action in the Circuit Court for the 17th Judicial Circuit, Winnebago County. After fully 2½ years (!) of litigation, on June 28, 1991 Mayers were ordered to pay Bank One $239,612.26, comprising $136,235.89 in principal amount, $47,366.34 in interest, $43,851.50 in attorneys' fees, and $12,158.53 in miscellaneous costs and expenses. After credit was given for the proceeds of the foreclosure sale of the Bess Hotel, on January 3, 1992 a deficiency judgment was entered against Mayers in the amount of $187,665.35.
Bank One's efforts to collect its judgment were stymied on January 16 and March 16, 1992, when John and Deborah respectively filed for bankruptcy. Bank One then brought an adversary proceeding against Mayers in Bankruptcy Court, seeking to have the Circuit Court judgment declared non-dischargeable under 11 U.S.C. § 523(a)(2)(A).2 Bank One alleged that Mayers had acted as a front for another couple, Donald and Rosemarie Monti (individually "Donald" and "Rosemarie" and collectively "Montis"), who were the real parties in interest throughout the Bess Hotel transaction. Assertedly Mayers thus came within the "false pretenses, a false representation, or actual fraud" provision of Section 523(a)(2)(A).
After the adversary proceeding was at issue, Judge Wedoff conducted a bench trial in July 1993. What follows is an account of the trial testimony.
Bank One loan officer Marilyn Seinwill ("Seinwill") testified that John, who had previously not been a Bank One customer (Tr. 43-44), had called her in March 1987 to inquire about a loan for the Bess Hotel (Tr. 13-14). Seinwill responded by telling John that she would need an appraisal and certain financial information (Tr. 15).
In November 1987 Seinwill received the Mayers' 1984 and 1985 tax returns and the couple's personal financial statements that had been signed by John on January 30 and again on November 2, 1987 (Tr. 17; P.Ex. 1). Those financial statements disclosed that John was a clinical psychologist with an annual income in excess of $150,000, while Deborah's occupation was listed as "Homemaker" with a reported income of zero. Mayers' listed net worth as of December 31, 1986 was approximately $800,000. Seinwill was concerned lest the Bess Hotel would not be able to meet its cash flow obligations, and in a second phone conversation John assured her that he would subsidize hotel operations with his personal income (Tr. 18-19, 28-29).
Bank One and Mayer closed the loan on December 11, 1987 (Tr. 27). Both the note and mortgage were pre-signed by John and Deborah before a notary public on December 4, 1987 (Tr. 27-28; P.Ex. 5). Although Mayers later denied that those were in fact their signatures, that position was fully litigated and decided against them in the foreclosure proceeding (Tr. 42; P.Ex. 15 ¶ 3).3 Seinwill also described Bank One's collection efforts once Mayers' account became delinquent (Tr. 34-42).
Donald testified to a deal that had been struck during a dinner attended by Donald, Rosemarie, John and Deborah in early March 1987 (Tr. 60-62). Mayers and Montis were very close friends (Tr. 63), and Rosemarie and Deborah were not only first cousins but were "inseparable," seeing each other every day at the stable where they rode horses together (Tr. 58, 63-64). John owed Montis approximately $50 to 60,000 as the result of a prior real estate investment (Tr. 59-60).
At the March 1987 dinner Donald agreed to forgive $35,000 of the existing debt if John would secure a loan and mortgage for the Bess Hotel (Tr. 61). Montis would have had great difficulty in securing the loan themselves because Donald was in bankruptcy and Rosemarie had no credit record (Tr. 62, 73-75). Consistently with their being the real parties in interest, Donald and Rosemarie agreed to manage the property and to repay the loan (Tr. 61-62).
Eventually the terms of the Montis-Mayers agreement were set out in one of two powers of attorney introduced into evidence (Tr. 5, 64-65; P.Ex. 7). Seinwill admitted that document would have been a "red flag" if she had been aware of it, but she testified that she saw it for the first time during the foreclosure proceeding — long after the loan transaction itself (Tr. 56-57).
John's version was entirely different from Seinwill's and Donald's: He testified that he had no knowledge of the loan transaction at all and never realized that the Bess Hotel was his responsibility (Tr. 9-10, 78). According to John, when he received mail from Bank One he would give it to his wife to pass along to Rosemarie (Tr. 79). And John testified that when he received messages from Seinwill on his answering machine, he would call Donald to tell him that "someone from Rockford" had called regarding what he assumed to be an unrelated real estate deal (Tr. 79).4
Judge Wedoff found that Bank One had proved by a preponderance of the evidence "that Mr. Monti and Dr. Mayer cooperated together to mislead the bank into believing that the Mayers would be the true borrowers here rather than the Montis" (Tr. 97) and that Bank One did not know about the scheme and reasonably relied upon Mayers' promise to repay the loan (Tr. 98-99). On August 12, 1993 Judge Wedoff therefore ordered judgment in favor of Bank One and against Mayers and declared the Circuit Court judgment to be nondischargeable in the amount of $149,761.90, while denying Bank One's claim for attorneys' fees.
On August 20, 1993 Bank One filed a motion for reconsideration. After further proceedings held on September 20, 1993, followed by briefing by the parties, on April 21, 1994 Judge Wedoff entered the Order now on appeal:
That the Motion for Reconsideration is granted, and for reason stated on the record both on July 21, 1993 and on September 20, 1993, that Judgment is entered in favor of Bank One — Rockford, NA and against the Debtors, John Mayer and Deborah Mayer, and the Judgment entered against both John Mayer and Deborah Mayer in the Circuit Court of the 17th Judicial Circuit, Winnebago County, Illinois, in case number 88 CH 344 be and is ordered nondischargeable in the amount of $254,391.02 which amount includes attorneys fees and costs, of $35,429.46 and which will further accrue interest at the rate 7% from April 21, 1994 until paid in full.
In reversing himself on the issue of attorneys' fees, Judge Wedoff explained that he felt bound by Klingman v. Levinson, 831 F.2d 1292 (7th Cir.1987).
On April 28, 1994 Mayers filed this appeal, asking this Court to reverse Judge Wedoff's April 21 decision as to non-dischargeability of the Circuit Court judgment including attorneys' fees in favor of Bank One. In accordance with Fed.R.Bankr.P. ("Rule") 8006, Mayers filed and served their statement of issues to be presented on appeal, which may be summarized in these terms:
In the course of a district court's decision to affirm, modify or reverse an order of the bankruptcy court, "findings of fact . . . shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses" (Rule 8013). Thus a bankruptcy court's factual findings cannot be disturbed "simply because the district court is convinced it would have decided the case differently" (In re Weber, 892 F.2d 534, 538 (7th Cir.1989), quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)). However, both questions of law and mixed questions of law and fact are reviewed de novo (In re Ebbler Furniture and Appliances, Inc., 804 F.2d 87, 89 (7th Cir.1986)). Mayers raise three questions of fact (their first three issues) and one question of law (their fourth issue), and each will be reviewed under the appropriate standard.
Section 523(a)(2)(A)
Section 523(a)(2)(A) provides that a debt shall not be discharged through bankruptcy "for money . . . to the extent obtained by . . . false pretenses, a false representation, or actual fraud," a provision designed to ensure that the bankruptcy code relieves only honest debtors from "the burden of hopeless insolvency" (...
To continue reading
Request your trial