In re Plechaty

• Decision Date: 07 October 1997
• Docket Number: Bankruptcy No. 94-14118,BAP No. 97-8036,Adversary No. 95-1608.
• Citation: 213 BR 119
• Parties: In re Ben L. PLECHATY, aka, Bernard L. Plechaty, aka, B.L. Plechaty, Debtor. NATIONAL CITY BANK, Plaintiff-Appellee, v. Ben L. PLECHATY, aka, Bernard L. Plechaty, aka, B.L. Plechaty, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

213 B.R. 119 (1997)

In re Ben L. PLECHATY, aka, Bernard L. Plechaty, aka, B.L. Plechaty, Debtor NATIONAL CITY BANK, Plaintiff-Appellee, v. Ben L. PLECHATY, aka, Bernard L. Plechaty, aka, B.L. Plechaty, Defendant-Appellant.

BAP No. 97-8036, Bankruptcy No. 94-14118, Adversary No. 95-1608.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued August 13, 1997.

Decided October 7, 1997.

Kenneth B. Baker, Javitch, Block, Eisen & Rathbone, Argued, Cleveland, OH, Saul Eisen, on Brief, for Defendant-Appellant.

Rosemary T. Milby, Weltman, Weinberg & Reis Co., Argued, Cleveland, OH, Michael S. Tucker, on Brief, for Plaintiff-Appellee.

Before: LUNDIN, RHODES, and WALDRON, Bankruptcy Appellate Panel Judges.

OPINION

This appeal arises from the bankruptcy court's judgment determining a debt owed by Appellant Ben L. Plechaty (the "Debtor") to Appellee National City Bank ("National City") to be nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(B) (1996). We affirm.

I. ISSUES ON APPEAL

This appeal requires a determination of the following questions:

1) Did National City delay in requiring payment of its demand note?

2) Is such a delay "an extension, renewal, or refinancing of credit" within the meaning of § 523(a)(2)?

3) Did National City rely on the false financial statement in granting the extension?

4) Was that reliance reasonable within the meaning of § 523(a)(2)(B)(iii)?

5) If all the requirements of § 523(a)(2)(B) have been satisfied, is the nondischargeable amount the entire debt plus interest?

II. JURISDICTION AND STANDARD OF REVIEW

Determinations of nondischargeability under § 523(a) are final orders for appeal purposes. 28 U.S.C. § 158(a)(1) (1996); National Acceptance Co. of Am. v. Bathalter (In re Bathalter), 123 B.R. 568, 571 (S.D.Ohio 1990), aff'd, 951 F.2d 349 (6th Cir.1991); see also Klingshirn v. United States (In re Klingshirn), 209 B.R. 698, 700 (6th Cir. BAP 1997) ("For purposes of appeal, an order is final if it `ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.'") (quoting Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989)). Appeals arising under § 158(a) may be heard by bankruptcy appellate panels, 28 U.S.C. § 158(c)(1), provided the district judges for the district in which the appeals occur have, by majority vote, authorized such appeals. 28 U.S.C. § 158(b)(6). The United States District Court for the Northern District of Ohio has authorized appeals to the Bankruptcy Appellate Panel of the Sixth Circuit.

The Debtor appeals from the bankruptcy court's oral findings of fact and conclusions of law. A trial court's oral findings of fact and conclusions of law are authorized by the Federal Rules of Bankruptcy Procedure, see FED.R.BANKR.P. 7052; FED.R.CIV.P. 52(a), and have been approved by the Sixth Circuit. See Getty v. Havrilesko (In re Getty), No. 95-5555, 1996 WL 193813, at *2 (6th Cir. Apr. 19, 1996); American Imaging Servs., Inc. v. Eagle-Picher Indus., Inc. (In re Eagle-Picher Indus., Inc.), 963 F.2d 855, 862 (6th Cir.1992).

Findings of fact by the bankruptcy court are reviewed under the clearly erroneous standard. FED. R. BANKR.P. 8013; United States v. Mathews (In re Mathews), 209 B.R. 218, 219 (B.A.P. 6th Cir.1997). "A finding of fact is clearly erroneous `when although there is evidence to support it, the reviewing court, on the entire evidence, is left with the definite and firm conviction that a mistake has been committed.'" Mathews, 209 B.R. at 219 (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)). This means the appellate court will defer to the trial court's findings of fact "unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses." FED.R.BANKR.P. 7052; FED.R.CIV. P. 52(a).

Conclusions of law are reviewed de novo. Corzin v. Fordu (In re Fordu), 209 B.R. 854, 857 (6th Cir. BAP 1997). De novo means that the appellate court determines the law in question independently of the trial court's determination. Id.

III. FACTS

National City Bank was the lead lender in a financial syndicate which provided loans up to $5,000,000 to Hamilton Cast Corporation, a company related to The Plechaty Companies. The loan was subject to a demand note, was secured by the inventory and receivables of Hamilton Cast, and was guaranteed by The Plechaty Companies. In the initial stages of the loan, the Debtor did not personally guarantee the debt.

As early as 1985 there were problems noted with the loan and, beginning in 1988, the arrangement was further jeopardized by the deteriorating financial condition of Hamilton Cast. Between 1988 and 1991, National City attempted to minimize its risk on the loan through various methods. In 1988, National City informed Hamilton Cast that it would no longer provide financing. In a letter dated July 20, 1989, National City and Hamilton Cast agreed that Hamilton Cast would seek to refinance the loan elsewhere.

In 1990, Hamilton Cast suffered a $700,000 loss by writing off the receivable of one of its substantial customers. This loss came at the same time National City was under pressure from Security Pacific, one of the lenders in the financial syndicate, to request immediate payment on the note. National City capped the line of credit at $1,500,000 in 1991. In that same year, Security Pacific formally requested National City to "make immediate demand upon Hamilton Cast for payment." National City responded to Security Pacific that a "course of dealing had been established . . . that clearly indicated . . . that a demand for payment would not be made." In later correspondence, National City informed Security Pacific that National City "had never waived its right to make demand." This same position was expressed in a letter from National City to David Wright, President of The Plechaty Companies: "This loan remains payable on demand." In a subsequent letter from National City to Security Pacific, National City reasserted its position, stating "it does not follow that a lack of demand . . . is a waiver of those rights."

Also in 1991, National City sought both financial statements and personal guarantees from principals of Hamilton Cast and The Plechaty Companies, including the Debtor. In a letter dated March 28, 1991, National City requested the Debtor update his personal financial statement. In response, on May 14, 1991, the Debtor provided National City his personal financial statement dated April 1, 1991. At that time, the outstanding balance on the Hamilton Cast loan was $1,972,000. The Debtor's personal financial statement listed his net worth at $27,057,000. At trial, the Debtor testified that he did not own any of the assets listed on the personal financial statement at the time the statement was presented to National City. (Tr. vol. 1, at 21.)

Following the submission of the personal financial statement, National City intensified its efforts to obtain personal guarantees. In a letter to the debtor dated July 17, 1991, National City stated that its decision "to continue to extend credit" was based in part on the Debtor's "stated intention to apply the proceeds from any personal or corporate asset sales to the debt of Hamilton." This was also reflected in the bank's term sheet, which was attached to the letter and listed the Debtor's guarantee as one factor in National City's decision.

As late as April 1, 1992, no agreement concerning the terms of the line of credit had been reached, although National City was receiving monthly payments on the loan and was negotiating with the Debtor concerning proceeds from a proposed liquidation of assets. In a letter that day to the Debtor, National City stated that Hamilton Cast's partial payments alone "are clearly not sufficient reason for the banks to continue to forbear." National City stressed the importance of receiving the Debtor's personal guarantee.

On April 2, 1992, the Debtor executed an Unconditional and Continuing Guarantee of the debt of Hamilton Cast. The personal guarantee was, by its own terms, "to induce National City . . . to extend or continue to extend credit . . . owing by Hamilton Corporation." National City's internal documents reflect that it delayed in requesting immediate payment of the Hamilton Cast note as a result of that guarantee. In particular, notes of National City's Corporate Criticized Asset Committee, dated May 11, 1992, state that National City had "received Ben Plechaty's guarantee in exchange for continued forbearance."

On September 21, 1992, National City made formal demand on the note to Hamilton Cast as borrower and to The Plechaty Companies as guarantor. On February 19, 1993, National City filed suit against the Debtor and The Plechaty Companies as guarantors of the Hamilton Cast debt. On March 17, 1994, the Court of Common Pleas for Cuyahoga County, Ohio entered judgment in favor of National City in the amount of $1,448,808.63 with interest at the rate of 7% from November 5, 1993. This decision, which was appealed to the Eighth District Court of Appeals, was affirmed. See National City Bank v. Plechaty Cos., 104 Ohio App.3d 109, 661 N.E.2d 227, appeal denied, 74 Ohio St.3d 1422, 655 N.E.2d 741 (1995).

On October 3, 1994, an involuntary Chapter 7 bankruptcy was filed against the Debtor and an Order for Relief was subsequently entered. National City filed a complaint to determine the dischargeability of the debt. The bankruptcy judge conducted a two-day trial and subsequently issued an oral decision excepting from discharge the debt in the amount determined in the Ohio court action. A judgment in accordance with that oral decision was entered on December 12, 1996. The Debtor's Notice of Appeal was filed on December 9, 1996, after the bankruptcy judge's oral decision but before the entry of judgment. See FED. R....