Sullivan v. Glenn
| Decision Date | 09 September 2014 |
| Docket Number | No. 14 C 0329,14 C 0329 |
| Citation | 526 B.R. 731 |
| Parties | Brian T. Sullivan, Plaintiff–Appellant, v. Michele A. Glenn and Michael R. Glenn, Jr., Defendants–Appellees. |
| Court | U.S. District Court — Northern District of Illinois |
OPINION TEXT STARTS HERE
Affirmed. Brian Thomas Sullivan, Brian T. Sullivan, Esq., Chicago, IL, for Plaintiff–Appellant.
Chester H. Foster, Jr., Foster Legal Services PLLC, Homewood, IL, Patrick Sean Layng, Office of the U.S. Trustee, Judge Barnes, United States Bankruptcy Court, Michael G. Berland, Law Office of Michael Berland Chicago, IL, for Defendants–Appellees.
Appeal from the Bankruptcy Court
This matter is before me on Appellant Brian T. Sullivan's appeal from the Bankruptcy Court's Order of November 15, 2013. Mr. Sullivan sought a determination of dischargeability of debt under 11 U.S.C. § 523(a)(2)(A) against debtors Michele and Michael Glenn. The Bankruptcy Court found that the debt was indeed dischargeable as to both debtors, and Mr. Sullivan, the creditor, appealed. On appeal, I review the bankruptcy court's factual findings under the clearly erroneous standard and legal findings de novo.
The loan was never repaid. In late December 2007 or early January 2008, Ms. Chung and Mr. Lopez informed Mr. Sullivan that the LaSalle loan had not been approved by the bank. Later, in the fall of 2009, Mr. Sullivan learned from LaSalle Bank that neither Ms. Chung nor Mr. Lopez had even applied for a line of credit for the Glenns' company. The representations Ms. Chung and Mr. Lopez made to Mr. Sullivan regarding the LaSalle Loan at the October 31 meeting were false. The Bankruptcy Court found that Mr. Glenn learned of these misrepresentations through Mr. Sullivan.
Mr. Sullivan filed an adversary proceeding against Ms. Chung in her bankruptcy case here in the Northern District of Illinois. (Bankr. No. 08bk15443). Pursuant to 11 U.S.C. § 523(a)(2)(A), Mr. Sullivan objected to the discharge of Ms. Chung's liability for four loans (including the loan at issue here) that he had made to her. Section 523(a)(2)(A) provides:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition.
After a three-day trial, the Chung Bankruptcy Court found that Ms. Chung had obtained the loans through her fraudulent behavior, and that the loans were thus non-dischargeable pursuant to § 523(a)(2)(A).
Mr. Sullivan also filed complaints against Michele and Michael Glenn, seeking essentially the same outcome in the context of the Glenns' bankruptcy. The Bankruptcy Court in the Glenns' bankruptcy, however, held that § 523(a)(2)(A) requires that the underlying fraud must have been committed by either the debtor at issue in the bankruptcy proceeding or his or her agent or partner in order for non-dischargeability to apply. The judge found that neither Michael Glenn nor Michele Glenn themselves committed fraud. The judge also found that Ms. Chung was neither Michael Glenn's nor Michele Glenn's agent. Accordingly, the Bankruptcy Judge held that § 523(a)(2)(A) did not apply, and that the Sullivan Loan was dischargeable as to Michele and Michael Glenn. In re Glenn, 502 B.R. 516 (Bankr.N.D.Ill.2013). This appeal followed.
Most of the issues Mr. Sullivan raises on appeal are with respect to the Bankruptcy Judge's factual findings. While Mr. Sullivan clearly disagrees with the Bankruptcy Court's findings, however, he has not shown that any were clearly erroneous. The Bankruptcy Judge made express credibility determinations at trial with respect to whether Michael Glenn himself had committed fraud and found that he had not. Similarly, the Bankruptcy Court made express credibility determinations at trial with respect to whether Ms. Chung was the Glenns' agent and found that she was not. With respect to both claims, the Bankruptcy Court found that Mr. Sullivan had not carried his burden of proof. Here on appeal, Mr. Sullivan gives numerous reasons why he disagrees with the Bankruptcy Court's findings, but, again, none shows that the findings were clearly erroneous.
Mr. Sullivan also claims that the Bankruptcy Court, as a matter of law, misapplied § 523(a)(2)(A) in holding that the Sullivan loan was dischargeable as to the Glenns despite Ms. Chung's fraud. Mr. Sullivan asserts that, under the plain meaning of the statute, a debt obtained by false pretenses, a false representation, or actual fraud is not dischargeable as to anyone obligated on the debt. Under Mr. Sullivan's understanding of the statute, then, where a loan is entered into by two or more co-debtors, and one of the co-debtors commits a fraud to obtain the loan, that fraud is enough to render the debt non-dischargeable as to all co-debtors, not solely as to the co-debtor who actually committed the fraud.
Mr. Sullivan's interpretation of § 523(a)(2)(A) is not necessarily at odds with the language of the statute on its face. There are numerous cases in which a debt has been held nondischargeable as to an “innocent” debtor as a result of a co-debtor's fraud. In all of these cases, however, the courts found that an agency or partnership relationship existed between the innocent debtor and the co-debtor who committed the fraud, such that the fraud could be imputed to the otherwise innocent co-debtor. See, e.g., In re Smith, 98 B.R. 423, 426 (Bankr.C.D.Ill.1989) (collecting cases). The Bankruptcy Court concluded that Mr. Sullivan's understanding of the statute—that a debt arising out of fraud is non-dischargeable as to any party obligated on the debt, regardless of that party's complicity in the fraud—would render the agency analyses in these decisions meaningless. There would be no need to find constructive complicity in the fraud through an agency/partnership relationship if complicity itself were irrelevant.
Mr. Sullivan responds to this reasoning by asserting that it misapprehends the work that the agency analysis is doing in these courts' application of § 523(a)(2)(A). He asserts that the agency analysis is relevant, not to establish the innocent debtor's complicity in the fraud, but rather to establish the innocent debtor's obligation on the debt. He then notes that, on the facts in the instant case, an agency relationship between the Glenns and Ms. Chung is not necessary to establish the Glenns' obligation on the Sullivan loan because the Glenns themselves (along with Ms. Chung) signed the promissory note. So under Mr. Sullivan's construction of the statute and case law, in many cases agency analysis is indeed an essential component of the analysis, but it is necessary only where the debtor's obligation on the debt is not otherwise independently established.
Mr. Sullivan's argument is creative, but I am not persuaded. Establishing a debtor's obligation on a given debt might well be a principled explanation for the relevance of agency analysis in these courts' decisions. But if true, the only limiting principle as to non-dischargeability under § 523(a)(2)(A) would be whether the debtor in question was actually obligated on the debt. So long as the debtor is obligated on the fraudulently obtained debt, the debt would be non-dischargeable as to that debtor. That is a tautology, of course, as it would be nonsensical to...
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