Shrewsbury v. Williams (In re Williams), Case No. 18-14178-SAH
| Decision Date | 03 March 2020 |
| Docket Number | Adv. No. 18-01113-SAH,Case No. 18-14178-SAH |
| Parties | In re: NAKIA A. WILLIAMS and KATY S. WILLIAMS, Debtors. JAMES SHREWSBURY, an individual and CORY DEAN SHREWSBURY, as Trustee of the JAMES LEE SHREWSBURY REVOCABLE TRUST dated October 11, 2017, Plaintiffs, v. NAKIA A. WILLIAMS and KATY S. WILLIAMS, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
The following is ORDERED:
In this adversary proceeding, the Court is presented with a family dispute over money - definitely not its first, and surely not its last. However, the evidence regarding the dispute is unusual in that a non-party banker, rather than one of the plaintiffs, testified about the alleged misrepresentations made by a daughter in the presence of her father. But he neither remembered those representations being made nor purported to rely on such representations. In effect, Plaintiffs' case relies entirely on representations being made to the banker, casting him as Father's "strawman." Plaintiffs appear to believe that such hearing and apparent reliance by the strawman can be shifted to Plaintiffs as a basis for excepting a debt from discharge under 11 U.S.C. § 523(a)(2)(A) and (a)(6).1 This Court disagrees.
The Court has jurisdiction to hear this Complaint pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(I). Additionally, the parties have consented to this Court's entry of final orders pursuant to Federal Rules of Bankruptcy Procedure 7008 and 7012.
In 2016, daughter Katy Williams ("Katy") asked her father James Shrewsbury ("Father") for assistance in financing the purchase of a new home for her family. Father, together with his father Eldon Shrewsbury ("Grandfather"), granted the request and borrowed $450,000.00 from Cleo State Bank ("Bank"), signing a promissory note for a term of one year and pledging three quarter sections of real property as security. The proceeds of the loan were used to purchase Katy's new home, which she owned with her husband Nakia Williams ("Nakia"). As part of thearrangement, Katy and Nakia allegedly promised to use proceeds from the sale of their existing house to pay-down the loan Father obtained on their behalf, but they were not signatories to the promissory note.2 A year later, in August 2017, the full loan remained outstanding and unpaid, and Father made the large interest payment due. At that time, the original note was renegotiated and a renewal note was executed by Father, Katy, and Nakia. Additionally, as a result of Grandfather's recent death, a new mortgage was executed in order to substitute the real property serving as collateral. Katy and Nakia did not pledge any of their property as collateral.
Even though Katy and Nakia sold both their home and another unrelated piece of property given to them by Doris in 2017, none of the proceeds were applied to the Bank loan. The loan matured and remained unpaid in August 2018. Consequently, Father and Bank entered into a forbearance agreement in October 2018. Father made another large interest payment and was also required to purchase a certificate of deposit to be applied to the interest that would come due in October 2019.
After Katy and Nakia filed for chapter 7 bankruptcy protection in October 2018, Father and Katy's brother, Corey Shrewsbury ("Corey"), as trustee of the James Lee Shrewsbury Revocable Trust dated October 11, 2017, filed this adversary proceeding asserting that losses suffered by Father in the above described transactions should be excepted from discharge under Section 523(a)(2)(A) and (a)(6). Based primarily on the express testimony of Father, the Court disagrees. Father and Corey, as Trustee, are not entitled to relief.
In making the following Findings of Fact and Conclusions of Law, the Court considered:
1. Twenty years ago, Father was in an accident and suffered a traumatic brain injury. Consequently, he has some memory issues but is otherwise not impaired. Father understood the questions asked of him during trial and gave appropriate and intelligent answers during the trial.
2. Katy and Nakia are the daughter and son-in-law of Father.
3. Historically, Father and Katy had a close relationship, with Katy seeing him approximately three times a week, helping with groceries, eating out with him, and taking him to appointments. Corey has not historically been involved with caring for Father.
4. After Grandfather died, Father discussed providing Katy and Corey their inheritance during their lifetime.
5. In 2016, Katy and Nakia lived in Enid in what is referred to as the "Yucca Home." The Yucca Home was subject to a mortgage lien.
6. In 2016, after Doris had begun living with Katy and Nakia, Katy and Doris found a house located in Enid, Oklahoma, that Katy wanted to purchase (the "Carrier Road Property").
7. Based on Katy and Nakia's 2016 and 2017 income tax returns, they were clearly unable to afford the Carrier Road Property. (Plaintiff Ex. 32 and 33).
8. Katy approached Father about helping her and Nakia purchase the Carrier Road Property. Father looked at the Carrier Road Property and thought it was nice.
9. Doris called Michael, Bank's president, about the possibility of a obtaining a loan to acquire the Carrier Road Property. Michael advised Doris that Bank3 did not make loans on residential real property.
10. Thereafter, Father agreed to help Katy and Nakia purchase the Carrier Road Property and was willing to put up the necessary collateral for a loan. Father believed parents should help their kids.
11. On or about June 14, 2016, Father, Katy, and Doris met with Michael at Bank to discuss a loan to acquire the Carrier Road Property for Katy and Nakia. It was decided Bank would loan $450,000.00 to Father and Grandfather for one year to be secured by three quarter sections of real property owned by Father and Grandfather.
12. Michael's handwritten notes from such meeting reflect that Katy would sell the Yucca Home for $150,000.00 to $160,000.00, and Doris would sell her Edmond home for $350,000.00 to $400.000.004 (Plaintiff Ex. 1).5 Neither Katy nor Doris recall telling Michaelwhat their likely sale proceeds would be, claiming that they would not know. The handwritten notes do not contain any specific statement that their sale proceeds will be used to pay down the loan.6
13. Father did not recall Katy making any representation to sell the Yucca Home and apply the sale proceeds to the loan, and Katy denies making such a representation at the June 14, 2016 meeting.
14. Up to the June 14, 2016, meeting, Father and Katy had not talked about how a loan to purchase the Carrier Road Property would be repaid.
15. Coming out of this meeting, Michael's understanding was that Father's only responsibility on the loan would be to provide the collateral and Father would have no responsibility for repayment. This statement is unusual coming from a banker with over thirty (30) years of experience given that only Father and Grandfather were going to sign the Note and the Mortgage (defined below).
16. On July 12, 2016, Bank loaned $450,000.00 to Father and Grandfather pursuant to the following (the "Loan"):
Neither Katy nor Nakia executed the Note or the Mortgage, and neither the Note nor the Mortgage make any mention that the Loan will be repaid by Katy and/or Nakia or that any property of Katy and/or Nakia will be the source of repayment of the Loan.
17. Father testified that, in obtaining the Loan and executing the Note and Mortgage, he relied on the facts that Katy was his daughter, she asked him to help, and he loved her.
18. Father told Nakia he planned on splitting his assets between Corey and Katy and they could use that property to payoff the Loan. Doris had previously discussed with Father giving their kids an early inheritance. She did so by gifting the "Gobel Property" (her childhood home) to Katy and Corey.
19. When the Loan closed, a check for $410,393.90 was made payable and delivered to Enid Title & Closing, LLC to fund Katy and Nakia's purchase of the Carrier Road Property. (Plaintiff Ex. 5). Katy and Nakia also received a check for $39,183.10 from the Loan closing to help them pay for furniture, appliances, and other expenses associated with purchasing a new home. (Plaintiff Ex. 6).
20. After the Loan closed, Michael had no contact with Katy and Nakia until March 2017.8
21. On March 13, 2017, Michael, Katy, Nakia, Doris, and Father met at Bank to discuss the Loan. Michael felt like everyone was cooperating and all was going well. Michael's notes, however, make no mention of any representations made by Katy and Nakia. Instead, the only representations noted were those made by Doris regarding her assets and possible sales thereof. (Plaintiff Ex. 9). This is the first time Michael met or spoke with Nakia.
22. On June 23, 2017, Katy received $102,230.29 from the sale of the "Gobel Property" jointly owned with Corey and gifted to them by Doris (the "Gobel Proceeds"). (Plaintiff Ex. 10). That same day, Katy...
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