Appeal from the United States Bankruptcy Court for the District of Nevada Honorable John L. Peterson, Bankruptcy Judge, Presiding. Bk. No. 07-51249
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on February 18, 2011 at Las Vegas, Nevada
Before: HOLLOWELL, KIRSCHER, and DUNN, Bankruptcy Judges.
The debtor challenges the bankruptcy court's factual findings made in its determination that a loan obligation to the debtor's former employer was nondischargeable under § 523(a)(2)(A).*fn2 We AFFIRM.
Julie Serpa (Serpa) and Bradley Fitch (Fitch) (collectively, the Debtors) were husband and wife. They owned two businesses, Fitch Aviation and Fitch Transportation. Serpa was the bookkeeper for the Debtors' businesses. Additionally, Serpa worked as a part-time bookkeeper for Jeanne Barnes (Barnes), who owned several small businesses. She worked for Barnes for over a decade. During the course of the relationship between Serpa and Barnes, Barnes lent Serpa $50,000 to help the Debtors with the Fitch Transportation business.*fn3 The money was later repaid with interest.
On September 20, 2005, Serpa sent Barnes an email asking to borrow money. Serpa told Barnes that she needed to borrow $200,000 for deposit into the Fitch Aviation bank account in order to increase the business' credit line and that she would return the money after 60 days.
Based on these conditions, Barnes agreed to lend Serpa $200,000 (the Loan). On September 23, 2005, they memorialized their agreement and executed a promissory note in the amount of $200,000 (the Loan Agreement), with 12% interest, compounded monthly. Pursuant to the Loan Agreement, Serpa was obligated to repay the Loan within 60 days, or by November 23, 2005, and pay $4,000 in interest. Additionally, the Loan Agreement provided that:
A ten-day grace period will be allowed if additional time is needed. If payment is not made in full on 12-4-05 (60 days plus 10 day grace period), a penalty of $200 plus $2,000.00 interest will be due and an additional 120 days will be allowed. During the extension, an interest payment of $2,000.00 is payable monthly plus a $200.00 late fee will also be due monthly. . . . After 120 days and no payment has been made foreclosure will begin on [the Debtors'] real property.
Although the Note referenced a security interest on the Debtors' real property that served as their residence (the Home), no deed of trust was executed at that time. On September 25, 2005, Barnes wrote a check to Serpa for $200,000. Serpa deposited the money into Fitch Aviation's bank account. On September 29, 2005, Serpa, presumably acting within her role as bookkeeper, wrote her husband a check, drawn on the Fitch Aviation account, in the amount of $100,000. Fitch then deposited the $100,000 check into the Debtors' personal bank account.*fn4
The Debtors failed to repay the money within 60 days. Barnes followed up with Serpa about repayment of the Loan several times. Serpa told her that the Debtors were trying to sell an airplane or to refinance their home in order to repay the Loan. In early 2006, Fitch emailed Barnes explaining that the Debtors were trying to put a deal together by either selling assets or raising additional capital in order to repay the Loan. In the meantime, he explained, they were out of cash and credit and would not be able to make the required interest payments. In March 2006, Serpa emailed Barnes informing her the Debtors were meeting with investors and that things were "looking up."
On March 11, 2006, the Debtors executed a deed of trust on the Debtors' Home in favor of Barnes as security for the Loan. Barnes did not record the deed of trust because, according to Barnes, the title report showed there was no equity in the Home. On April 19, 2006, the parties executed a renegotiated Loan Agreement, lowering the amount of interest to 10% and extending repayment to April 23, 2007.
Sometime in August 2006, the Northern Nevada Bank (the Bank) and Fitch Aviation entered into a debt modification agreement, which resulted in extending Fitch Aviation's credit line to $420,000. Even though the credit line was increased, the Debtors did not repay Barnes.
In February 2007, Serpa informed Barnes that the Debtors were "planning to have everything taken care of" so that they could repay the Loan by April. However, no payment was forthcoming. At the end of April 2007, Barnes wrote to Serpa, "What's going on? No payment, no phone call? Let us know what is happening." In May 2007, Fitch responded to Barnes that "the airplane deal" had not yet closed and that the Debtors needed additional time to pay. He explained that they were also working with Bank of America for an equity line of credit to satisfy the Loan. In June 2007, Serpa emailed Barnes that they were still working on the means to repay the Loan.
On September 17, 2007, the Debtors filed for chapter 7 bankruptcy. Fitch Transportation and Fitch Aviation were listed as co-debtors. Serpa and Fitch divorced during the course of the bankruptcy.
On November 2, 2007, Barnes filed a complaint against the Debtors alleging that the Loan was nondischargeable under § 523(a)(2) and (a)(4) (the Complaint). Barnes' claim under § 523(a)(4) was dismissed with prejudice on March 5, 2008, when the bankruptcy court found that no fiduciary relationship existed between ...