SLK Capital, LLC v. Beach (In re Beach)
| Decision Date | 03 April 2023 |
| Docket Number | 21-23346-beh,Adv. 21-2103 |
| Parties | In re: Brian E Beach and Theresa A Winger-Beach, Debtors. v. Brian E Beach, Theresa A Winger-Beach, Beach's Steaks & Spirits LLC, Louis D Reimer, and Mary Lou Reimer, Defendants.[1] SLK Capital, LLC, Plaintiff, |
| Court | U.S. Bankruptcy Court — Eastern District of Wisconsin |
DECISION AND ORDER FOR JUDGMENT
The plaintiff, SLK Capital, LLC ("SLK"), seeks a determination that debtor-defendants Brian Beach and Theresa A. Winger-Beach both owe it a debt based on a loan default by Mr. Beach and his business, Beach's Steaks & Spirits LLC, and that the debt should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(B). The loan default by Mr. Beach and his business was the subject of a state court action in Forest County, which was reduced to a judgment of $220,948.18 against those two defendants. Following a trial and consideration of the evidence see ECF Nos. 70, 73, 74, the Court finds that SLK has not established that Theresa Winger Beach owes it a debt and it has not sustained its burden to show, by a preponderance of the evidence, that the debt owed by debtor Brian Beach arose from a false written statement by which Mr Beach intended to deceive the lender. Accordingly, the Court will grant judgment in favor of defendant-debtors.
The Court has jurisdiction under 28 U.S.C. § 1334 and the Eastern District of Wisconsin's July 16, 1984, order of reference entered under 28 U.S.C. § 157(a). Brian Beach concedes he owes a debt to SLK. Determining whether his debt is dischargeable is a core proceeding under 28 U.S.C. § 157(b)(2)(I), for which the Court may enter final judgment. 28 U.S.C. § 157(b)(1). Whether Theresa Winger Beach also is liable for the debt presents a question of state law.[2] This decision constitutes the Court's findings of fact and conclusions of law under Fed.R.Bankr.P. 7052.
In April 2015, Brian Beach purchased a property located at 10139 Highway 8, Crandon, WI 54520 for $125,000.00, a mixed-use property that later became a restaurant and the debtors' homestead. ECF No. 65-13, at 6, 12-13. Mr. Beach funded the purchase with money from his mother, Mary Lou Reimer, and her husband, Louis Reimer. Shortly after the purchase, Mr. Beach and the business he owns, Beach's Steak & Spirits LLC, applied for and obtained a series of loans from the plaintiff SLK. There is no evidence debtor had a prior relationship with SLK.
During the process of applying for financing and consolidated financing in 2015 and 2016, Brian Beach and Theresa Winger told SLK that they would have the accountant for the business, Wayne Link, provide certain financial information to SLK. That information included a document titled Beach's Steak & Spirits Source & Use of Funds (undated), and Beach's Steaks & Spirits LLC Balance Sheet, dated November 30, 2015. ECF No. 65-2, at 20, 21 (). The debtors also provided SLK with a business plan, ECF No. 65-2, at 7-12, industry analysis, 65-2, at 6-14, detailed need for the funds, 65-2, at 15-17, and financial statements, 65-2, at 18-24. Both the Source & Use of Funds and the Balance Sheet listed for Year 1 a personal investment of $160,000, no private loans or real estate loans, an equipment loan of $20,000 and a bank line of credit for $20,000. ECF No. 65-2, at 20-21. Email communications between Mr. Link and SLK representative Ms. Joey Hansen show the Source & Use of Funds and the Balance Sheet were provided to SLK in August of 2015. ECF No. 65-4, at 1.
As part of the loan application process, Brian Beach described the backgrounds of key persons to work for the restaurant. He described his brother, Michael Roeper, as someone who had been employed in the food and beverage industry for almost 35 years, as a chef, executive chef, food and beverage director and general manager. ECF No. 65-2, at 3. Mr. Beach described his own background:
Brian Beach started his restaurant experience at the age of thirteen (13), washing dishes at a local restaurant. Following in his brother Mikes footsteps, Brian worked his way up the ranks to Night Chef at the age of sixteen (16) with the Holiday Inn franchise. Knowing the restaurant business was in his blood, he worked the next thirty (30Chef, Kitchen Manager. Mr. Beach has worked at the Hartford Country Club, West Bend Country Club, Devil's Head Ski Resort and the Five Star rated, Fox & Hounds in Germantown WI. Some of Mr. Beach's achievements include feeding twelve hundred (1200), at the Wisconsin AA Convention and Pig Roast, and cooking a Cancer Benefit for one thousand five hundred (1500) at the Hartford Country Club. Brian also has extensive Bartending training, working at Wisconsin's largest indoor bar, The Mine Shaft in Hartford, Wisconsin. Mr. Beach's strengths are his ability to handle stressful situations, teaching and mentoring to those who also take pride in their job, his delicious preparations of a wide variety of food the many people who have followed him through his career as a remarkable Chef.
ECF No. 65-2, at 4.[3] The loan application also described the joint debtor's background:
Theresa Winger, Brian's finance had a restaurant/banquet facility in Minocqua for three (3) years. Theresa managed the entire staff and establishment which seated 500 guests. Even though "Beach's Steaks & Spirits" is somewhat smaller, the same managerial skills are needed. With her ability to manage and teach professionalism along with proper etiquette, Theresa will be a great fit to "Beach's Steaks & Spirits."
To secure payment on each loan, Mr. Beach executed Unlimited and Continuing Guaranties of Payment, dated June 11, 2015, August 19, 2015, and December 21, 2015. ECF No. 61, at 1-2, ECF Nos. 65-3, at 12, 65-6, at 1, 65-8, at 7. SLK made the first loan to "Beach's Steaks & Sprits, LLC" (sic) on June 11, 2015, in the amount of $35,000. ECF No. 65-3, at 5. Mr. Beach signed that promissory note as Owner. SLK made a second loan to the business on August 19, 2015, for $25,000, ECF No. 65-5, at 5. Mr. Beach also signed that promissory note as Owner. SLK made its third loan to the business on December 21, 2015, for $20,000, with Mr. Beach signing the promissory note as Owner. ECF No. 65-8, at 5. On June 23, 2016, the SLK loans were consolidated into a $90,000[5] promissory note Brian Beach signed as Owner, and which reaffirmed the accuracy of the financial information previously supplied. ECF No. 61, at 2. Ms. Hansen of SLK testified that Beach's payments on the loan strengthened their relationship and induced SLK to lend more money and eventually to consolidate the notes.
The consolidated note states the loan would be in default upon the occurrence of one of the following events: (1) failure to make a timely monthly payment within three days of the applicable due date; (2) default in performance of any obligation or the breach of any of the representations, warranties, or covenants and failure to cure them within ten days; (3) insolvency of the borrower; (4) executing a general assignment for the benefit of creditors; (5) filing of a petition for bankruptcy, or seeking relief under any laws related thereto; (6) suspension of the operation of the business; or (7) default under the Security Agreement. ECF No. 65-9, at 2. The accompanying guaranty required Brian Beach to refrain from encumbering the restaurant's assets without SLK's consent. ECF No. 65-10, at 2.
In addition, each of the SLK loan documents signed by Brian Beach contain the following clause:
Borrower represents and warrants to Holder that: . . . h) all of the financial statements, contracts and other written information which Borrower furnished to Holder prior to the date of the Note are accurate and complete in all material respects and fairly present in all material respects the financial condition and the results of operations of Borrower for the periods covered thereby and and as of the relevant dates thereof; and . . . Borrower does not have any knowledge of any material liability of any nature not disclosed in writing to Holder.
ECF Nos. 65-5, at 3, 65-8, at 3, 65-9, at 3. Theresa Winger did not sign any of the SLK loan documents. The $90,000 consolidated note to SLK matured on June 5, 2017. ECF No. 65-9, at 1.
Several weeks later, on June 27, 2017, Brian Beach executed a $160,000 mortgage in favor of his mother and stepfather securing the business property. The mortgage was recorded with the Forest County Register of Deeds. The "Attachment to Mortgage Deed" reads:
ECF No. 65-13, at 11. Theresa Winger and Brian Beach married not long after, on July 15, 2017.
Mr Beach's trial testimony was somewhat inconsistent as to whether the funds he accepted from the Reimers were a gift or a loan. On adverse examination he first responded affirmatively when asked whether he had borrowed the $160,000. He agreed...
To continue reading
Request your trial