Wayman v. Shanklin (In re Shanklin)
| Decision Date | 22 October 2015 |
| Docket Number | CASE NO. 14-31414 HCD,PROC. NO. 14-3055 |
| Parties | IN THE MATTER OF GARY R. SHANKLIN DEBTOR ROBERT D. WAYMAN PLAINTIFF v. GARY R. SHANKLIN DEFENDANT |
| Court | U.S. Bankruptcy Court — Northern District of Indiana |
Appearances:
Trevor Q. Gasper, Esq., 4100 Edison Lakes Parkway, Suite 1000, Mishawaka, Indiana 46545, for plaintiff Robert D. Wayman.
R. William Jonas, Esq., 137 North Michigan Street, South Bend, Indiana 46601, for defendant Gary R. Shanklin.
At South Bend, Indiana, on October 22, 2015.
The matter before the court is Robert D. Wayman's Complaint to Determine Dischargeability against the debtor, Gary R. Shanklin. The complaint, filed August 25, 2014, asks the court to except the debt of Shanklin to Wayman from discharge under 11 U.S.C. § 523(a)(2)(A), and (a)(6).1 The court conducted a trial on October 13, 2015. At that trial the court heard witness testimony and documentary evidence was admitted. At the conclusion of plaintiff Wayman's case, defendant Shanklin moved for a judgment on the evidence. Upon consideration of the testimony and documentary evidence admitted, the court granted the motion and ruled from the bench finding the debt of Gary Shanklin to Robert Wayman should not be excepted from discharge. The court is issuing this memorandum of decision to memorialize its findings of fact and conclusions of law.
Jurisdiction
In their joint amended pre-trial order, the parties note this adversary proceeding is a core proceeding within the jurisdiction of this court under 28 U.S.C. § 157(b)(1). The court finds it has jurisdiction to decide the matter before it pursuant to 28 U.S.C. §§ 1334 and 157, and the Northern District of Indiana Local Rule 200.1. Venue is proper pursuant to 28 U.S.C. § 1409(a). The court has determined that this matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
Background
The parties in this adversary proceeding became acquainted in 2002 or 2003. During 2004 or 2005 Shanklin began his own car business, GRS Sales and Marketing and GRS Motorwerks (collectively GRS). Beginning sometime in 2005, the parties began their business relationship. Shanklin originally turned to Wayman toprovide financing because Shanklin did not have good credit. Wayman was aware of Shanklin's poor credit situation when he began their business relationship. Under their business arrangement, Wayman was to provide funding to Shanklin to permit Shanklin to acquire vehicles for resale. In exchange for providing acquisition funding, Shanklin was to provide Wayman with vehicle titles within three to five business days. This relationship began based on the verbal expressions of the parties. The initial intention of the parties was to reduce their business agreement to writing. Wayman testified that, while Shanklin was to provide the documentation, "it did not happen." Wayman testified that he himself made no effort to obtain a written agreement.
Wayman's trial testimony outlined his understanding of the business operation. Because he did not have cash on hand to meet the business requirements, Wayman stated he refinanced his home and established a home equity line of credit. Shanklin would contact Wayman for funding to permit Shanklin to purchase a particular vehicle. Wayman would then provide cash for the acquisition, either by check or electronic fund transfers. To facilitate electronic transfers, in May 2006 Wayman became an authorized signatory on the business account of GRS. Although Wayman had full access to the business account as an authorized signer, he testified that he only used this authority to transfer funds into the account and never reviewed account information.
At trial Wayman testified about the agreement that governed his relationship with Shanklin. Contrary to testimony that the parties neverdocumented their business relationship, he referenced an undated document captioned "Floorplan Agreement & Terms." This document states "a title and bill of sale will be presented within 3 - 5 business days for each vehicle purchased." Wayman testified that from the beginning of the business relationship in 2005, Shanklin failed to provide Wayman with vehicle titles or bills of sale. Wayman stated that he received neither titles nor bills of sale for any of the more than one hundred vehicles involved in his business dealings with Shanklin.
Although the floorplan agreement also states that "when a vehicle is sold a copy of the bill of sale will be presented to release the appropriate title," Wayman further testified that he never received any bills of sale. Notwithstanding these departures from the stated procedure, Wayman continued to lend funds to Shanklin for 33 months based on his feelings of trust and friendship toward Shanklin. Over the course of their business relationship, Wayman testified that he had advanced in excess of $1.2 million to Shanklin. Wayman testified that at the time of the transactions in 2005, 2006, and part of 2007, he believed Shanklin intended to repay the loans. However in late 2007, the business relationship changed when Wayman "got a bad feeling about the activity and what was going on on the car lot." In late 2007 Wayman began to look for evidence of the monies owed. Concerned by the lack of documentation showing a connection between funds advanced and vehicle purchases, Wayman expressed his dissatisfaction with Shanklin's business practices. Wayman testified that his lending relationship with Shanklin ended in March 2008.
Included in the trial record is a copy of email communication between Wayman and Shanklin on May 8, 2008, referencing Shanklin's longstanding failure to perform the parties' agreements. Subsequent to this communication, Shanklin signed a promissory note prepared by Wayman on May 12, 2008. This note memorialized a debt owed by Shanklin to Wayman of $146,647. Under cross examination Wayman commented that he had "no choice" but to believe that Shanklin intended to honor the terms of the agreement. Between the date of the note, May 12, 2008, and the last payment by Shanklin under the note in January or February of 2014, Shanklin paid Wayman more than $126,000 in principal and interest on the balance due under the note. After those payments, Wayman testified the principal due on the loan is $67,412. Shanklin has listed this amount on his Schedule F as an unsecured debt owed to Wayman.
At the close of the plaintiff's case, counsel for Shanklin moved the court for judgment on the evidence. Because all the extensions of credit that are the subject of Wayman's complaint were completed by December 2007, Shanklin's counsel asserted that the Indiana statute of limitations expired before Wayman filed this adversary proceeding. Only the May 12, 2008 promissory note is not barred by the statute. Counsel noted that Shanklin paid more than $126,000 to Wayman on his $146,647. promissory note during the six years prior to Shanklin's filing bankruptcy. Counsel asserted these repayments are a clear sign that Shanklin intended to repay what he owed Wayman. Counsel also argued that a floor plan agreement alone cannot be the basis of an embezzlement or a conversion claim because once fundswere advanced to GRS, they were no longer property of Wayman. According to counsel, these factors cause claims under § 523(a)(4), and (a)(6) to fail.
Findings of Fact and Conclusions of Law
Statute of Limitations
Shanklin posits that Wayman's claim to except his debt from discharge is barred by the Indiana statute of limitations. The evidence presented at trial showed that Wayman and Shanklin were engaged in business transactions between 2005 and 2008. Indiana has established a two-year statute of limitations on damages to property. I.C. § 34-11-2-4(a)2. Indiana also limits actions for relief against fraud to six years after the cause of action accrues. I.C. § 34-11-2-73. As to actions on contracts, the six-year statute of limitations begins to run from the time the right of action accrues, i.e., the time the agreement is breached, rather than the time that actual damages are sustained as a consequence of the breach. I.C. § 34-11-2-94; Meisenhelder v. Zipp Express, Inc., 788 N.E.2d 924, 928 (Ind. App. 2003) (citing Penn. Co. v. Good, 103 N.E. 672, 673 (1913)) (a cause of action for breach of contractaccrues at the time the breach occurs, and the statute of limitations begins to run from that date); Bailey v. Skipperliner Industries, Inc., 278 F.Supp.2d 945, 964 (N.D. Ind. 2003) ().
The court finds the trial record establishes the business relationship between Wayman and Shanklin began in 2005 and ended in March 2008. This business relationship was not formally documented. Wayman testified his last advance to Shanklin was December 28, 2007. The only business transactions after December 2007 were repayments by Shanklin to Wayman on the May 2008 promissory note. Consequently, any claim Wayman may have against Shanklin stemming from financial transactions tied to the purchase of vehicles must have arisen before December 2007 when Wayman made his last advance to Shanklin. Wayman filed this adversary proceeding August 25, 2014. The Indiana six year statute of limitations operates to bar any right of action accruing before August 25, 2008. The court finds any right of action Wayman may have based on Shanklin's fraud or breach of contract arising before August 25, 2008 is barred by the Indiana statute of limitations. See I.C. §§ 34-11-2-7 and 34-11-2-9.
The court also finds that the evidence shows Shanklin signed a promissory note on May 12, 2008 stating his obligation to pay Wayman $146,647. This note identifies Shanklin as the borrower and Wayman as the lender. The note does not identify any background to the loan transaction or make mention of any security or collateral. This note requires Shanklin to...
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