Sheridan, Matter of
| Decision Date | 19 June 1995 |
| Docket Number | No. 94-3750,94-3750 |
| Citation | 57 F.3d 627 |
| Parties | , Bankr. L. Rep. P 76,548 In the Matter of Robert SHERIDAN, Debtor-Appellee. Appeal of CITY NATIONAL BANK OF FLORIDA. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Catherine Steege (argued), Jenner & Block, Patrice A. Powers, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, IL, Robert P. Frankel, Lapidus & Frankel, Miami, FL, for City Nat. Bank of Florida.
Louis W. Levit (argued), Patrick S. Munzer, Brian L. Shaw, Ross & Hardies, Chicago, IL, Charles S. Stahl, Jr., Wheaton, IL, for Robert Sheridan.
Before POSNER, Chief Judge, FLAUM, Circuit Judge, and SHABAZ, District Judge. *
City National Bank of Florida ("City National") sought to hold non-dischargeable the debt owed to it by Robert Sheridan, the bankruptcy petitioner, as a consequence of unrepaid loans. City National contended that Sheridan obtained the underlying loans through the submission of false financial statements and under false pretenses. 11 U.S.C. Sec. 523(a)(2)(A), (B). The bankruptcy court directed a verdict for Sheridan at the end of City National's case, a decision the district court affirmed. We also affirm.
Robert Sheridan, a developer and manager of commercial and multi-family real estate in Illinois, Florida, and New York, had been involved in the real estate business for over eighteen years. He conducted his business under the names Robert Sheridan & Partners and the Edgemont Corporation. In 1988, Sheridan met with executives from City National to discuss borrowing money for short-term financing of earnest money deposits on property he sought to purchase. On December 29, 1988, Sheridan submitted to City National an August, 1988 financial statement listing his net worth at approximately $29 million. Sheridan testified that he intended City National to rely on the statement in determining whether to extend him financing. The statement had been compiled in the same form, using the same methodology, as financial statements Sheridan had previously produced and had regularly submitted to other financial institutions and third parties. City National's Executive Vice President in Charge of Lending and Chairman of its lending committee, G. Craig Young, reviewed the statement and asked Sheridan several questions regarding its contents.
On March 28, 1989, City National's lending committee approved a $500,000 line of credit for Sheridan, subject to City National's approval of each draw request made by Sheridan. The parties agreed that the line of credit would only be used to finance earnest money deposits. Sheridan further agreed to repay the funds when a sale closed and he had secured permanent financing, or when negotiations broke down and a sale failed to close. City National's letter of commitment stated that Sheridan had to submit a "complete breakdown of the investment which the funds will be used to acquire, together with supporting documentation" with every request for funds. By signing this letter, Sheridan recognized that City National had relied on his financial statement.
On April 24, 1989, Sheridan made his first draw request for $300,000 to make a principal payment to another bank. City National told Sheridan's comptroller that the line of credit was not intended for that purpose, and Sheridan withdrew the request.
On May 10, 1989, Sheridan requested $200,000 for earnest money deposits on property located in Carol Stream and Aurora, Illinois. City National approved the request and wired the money to Sheridan's general business account. At the time he requested the draw, Sheridan's account had a negative balance of over $117,000, which grew to over $175,000 on the day of the transfer. The loan proceeds brought Sheridan's account to a positive balance. On May 25, Sheridan made an earnest money deposit of $100,000 on the Carol Stream property. On the same day, Sheridan received the proceeds from the sale of another property, which City National asserts is the money he used for the Carol Stream deposit. Sheridan deposited $100,000 on the Aurora property on June 20, bringing his total deposits to $200,000, the amount of the May draw. City National presented evidence that just prior to his request for the draw, Sheridan had borrowed $275,000 from Manufacturers Hanover Trust Company ("MHT") for an earnest money deposit on the Aurora property, although he made no such deposit in May.
On August 4, 1989, Sheridan deposited $150,000 on the Aurora property. He requested a $200,000 draw for down payments on that and the Carol Stream property on August 23, 1989. Two days later, Sheridan sent a letter terminating negotiations for the Aurora property, and on August 31, before he had received the money from City National, Sheridan requested the return of his Aurora deposits. City National transferred the draw proceeds to Sheridan on September 5, 1989, at which time Sheridan's account had a negative balance of approximately $8,000. Sheridan received the $250,000 Aurora deposit refund on September 7, and although Sheridan knew he had to repay the bank upon this event, his comptroller failed to do so. On September 13, Sheridan deposited $100,000 on the Carol Stream property.
Sheridan repaid the May loan in full on November 13, 1989, at which time he still owed City National $200,000, the total of his deposit on the Carol Stream property. At the end of November, Sheridan provided City National with his August, 1989 financial statement listing his net worth at approximately $31 million. The Carol Stream property purchase closed on December 15, 1989, but Sheridan did not inform City National of this occurrence.
On February 26, 1990, Sheridan requested $300,000 for an earnest money deposit on industrial property in Florida as well as for short-term cash flow needs, which City National approved and paid. In February, Sheridan also negotiated for the renewal of the August, 1989 draw. He informed City National that the Carol Stream deal had closed but City National renewed the note without inquiring as to why Sheridan had not repaid the money at the time of the closing. Both notes came due on May 15, 1990, at which time Sheridan asked for a further extension. City National requested an updated financial statement which indicated Sheridan had a net worth of approximately $32 million. In response to City National's inquiry whether he was in default on any other loans, Sheridan stated no, although evidence presented at trial showed he was in default to his primary lender, MHT.
City National granted Sheridan's request for an extension and, upon receipt of a $100,000 payment, gave Sheridan an additional extension when the notes came due in June, 1990. Sheridan failed to repay either loan on their final due date, July 27, 1990. In August, he informed all of his lenders that he could not pay them. On February 26, 1991, City National obtained a judgment against Sheridan for $438,385.69. Sheridan filed for Chapter 11 bankruptcy on April 26, 1991. In his petition, Sheridan stated he had a negative net worth of approximately $16.6 million.
City National moved the bankruptcy court to hold its judgment against Sheridan non-dischargeable. It alleged that Sheridan had made materially false written statements regarding his financial position on which City National had relied in lending him money, referring to the three financial statements. 11 U.S.C. Sec. 523(a)(2)(B). City National also contended that Sheridan had obtained the August, 1989 loan under false pretenses by representing that he would use the proceeds as earnest money deposits on the Aurora property when he had no intention of doing so. 11 U.S.C. Sec. 523(a)(2)(A).
At trial before the bankruptcy court, City National presented the expert testimony of Harold Sullivan, a certified public accountant and the partner in charge of Ernst & Young's reorganization practice. Sullivan is also certified as a business valuation appraiser and oversees Ernst & Young's valuation department. He testified that each of Sheridan's three financial statements materially overstated the value of his real estate investments and his net worth. Sullivan asserted that at all relevant times, Sheridan's actual net worth was close to zero.
Sullivan reached his conclusions after examining Sheridan's five largest investments, which accounted for over 75% of the real estate holdings and 54% of the assets listed on the financial statements. Sheridan owned none of the property directly. Rather he had general partnership interests in partnerships that owned them and he owned the stock of Edgemont, which held limited partnership interests in the partnerships. Sullivan testified that Sheridan's equity interest in the properties only equaled their values after all other creditors were paid. Sullivan stated, however, that Sheridan's papers indicated he used asset discount rates to determine his equity interests in the properties. This process increased Sheridan's equity interest by using lower discount rates, thereby underestimating his risk and overvaluing his interests. City National also presented evidence that the financial statements listed values for each property that were several million dollars above Sheridan's recent purchase price or his recent appraisal values. Sullivan concluded that to arrive at the values contained in his financial statements, Sheridan must have used inflated cash flows and applied an inappropriate discount rate.
Sullivan computed his own values for the properties based on actual cash flows, appraisals, recent selling prices, and the partnerships' financial statements. These calculations led Sullivan to conclude that Sheridan had overstated his real estate interests by at least $20.4 million in August, 1988, $18.1 million in August, 1989, and $21.4 million in February, 1990. Sullivan stated that Sheridan's net worth at these times was close to zero rather than the...
To continue reading
Request your trial
-
In re Bowden
...accordingly."); Miller v. Blagaich (In re Blagaich), 67 B.R. 375, 377 (Bankr.S.D.Fla.1986)); see also City Nat'l Bank of Fla. v. Sheridan (In re Sheridan), 57 F.3d 627, 635 (7th Cir.1995); Leverage Leasing Corp. v. Reitz (In re Reitz), 69 B.R. 192, 196 The Court finds that Elrod's testimony......
-
Bd. of Educ. of Chi. v. Monarrez (In re Monarrez)
...J.). An intent to deceive may be established through direct evidence or inference. Monroe , 304 B.R. at 356 (citing In re Sheridan, 57 F.3d 627 (7th Cir. 1995) ). Because direct proof of fraudulent intent is often unavailable, fraudulent intent "may be determined from the totality of the ci......
-
In re Hathaway
...to use the funds accordingly."); Miller v. Blagaich (In re Blagaich), 67 B.R. 375, 377 (Bankr.S.D.Fla.1986); see also In re Sheridan, 57 F.3d 627, 635 (7th Cir.1995); Leverage Leasing Corp. v. Reitz (In; re Reitz), 69 B.R. 192, 196 (N.D.Ill. 1986). Furthermore, "[f]raud and Misrepresentatio......
-
In re Weichman, Bankruptcy No. 08-23482 JPK.
...relied on the representation resulting in a loss to the creditor; and (5) the creditor's reliance was justifiable;FN5 In re Sheridan, 57 F.3d 627, 635 (7th Cir. 1995); Mayer v. Spanel Int'l, Ltd. (In re Mayer), 51 F.3d 670, 673, 676 (7th Cir.), cert. denied, 516 U.S. 1008, 116 S.Ct. 563, 13......
-
Chapter I Overview of Evidence
...See Palmacci v. Umpierrez, 121 F. 3d 781, 792 (1st Cir. 1997).[61] See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 139 (1997); In re Sheridan, 57 F.3d 627, 634 (7th Cir. 1995); 3 Christopher Mueller & Laird Kirkpatrick, Federal Evidence § 7.10 (4th ed. 2013).[62] See Luce v. United States, 469 ......