Case: 11-20306        Document: 00511884214              Page: 1       Date Filed: 06/12/2012




            IN THE UNITED STATES COURT OF APPEALS
                                                                                   United States Court of Appeals
                                                                                            Fifth Circuit
                              FOR THE FIFTH CIRCUIT                                     FILED
                                                                                       June 12, 2012

                                                                                      Lyle W. Cayce
                                             No. 11-20306                                  Clerk



In the matter of: LEONIDAS KAPETANAKIS, also known as Lee Kay,

                                                          Debtor
--------------------------------------------------------------------------------------------------

LEONIDAS KAPETANAKIS,

                                                          Appellant
v.

FIRST NATIONAL INSURANCE COMPANY OF AMERICA,

                                                          Appellee



                      Appeal from the United States District Court
                           for the Southern District of Texas
                                USDC No. 4:10-CV-01369


Before JONES, Chief Judge, and WIENER and GRAVES, Circuit Judges.
PER CURIAM:*
        Defendant-Appellant Leonidas Kapetanakis (“Kapetanakis”) appeals the
bankruptcy court’s ruling, as affirmed by the district court, that, pursuant to 11
U.S.C. § 523(a)(2)(A), a claim by Plaintiff-Appellee First National Insurance

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
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                                   No. 11-20306

Company of America (“First National”) against Kapetanakis as indemnitor of his
corporation’s obligations is not dischargeable in bankruptcy. Both the district
court and the bankruptcy court held that the $3,050,000.00 debt, which
Kapetanakis had incurred as indemnitor, was not dischargeable because he had
obtained surety bonds for his corporation from First National through actual
fraud. Specifically, Kapetanakis had not only signed for himself but had forged
the signatures of his spouse, his brother, and his brother’s spouse, as
indemnitors under an agreement (the “Indemnity Agreement”) that First
National had required before issuing the bonds in question to the closely held
Kapetanakis corporation, Quality Woodwork Interiors, Inc.
      First National initially sued all four indemnitors in district court, seeking
to recover the losses it had incurred under those surety bonds.              After
Kapetanakis testified that he had forged the remaining signatures on the
Indemnity Agreement, First National and Kapetanakis entered into a settlement
agreement, on the basis of which the district court issued a $3,050,000.00
consent judgment against Kapetanakis. Months later, however, Kapetanakis
filed for bankruptcy and sought the discharge of his consent-judgment
indebtedness to First National.
      Our review of the appellate briefs, oral argument, and the record on appeal
convinces us that there was no reversible error of fact or law on the part of the
bankruptcy court. Kapetanakis’s contention that First National released its
non-dischargeable fraud claim when it entered into the consent judgment is
foreclosed by the Supreme Court’s holding in Archer v. Warner.1 As we are
satisfied that First National has established the reliance and intent prongs of §
523(a)(2)(A), Kapetanakis’s debt to First National is not dischargeable in
bankruptcy.


      1
          

 (2003).

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                                  No. 11-20306

      First National adduced evidence showing that it would not have issued the
bonds without an indemnity agreement signed by the owner or owners of all
outstanding stock in the corporation and by the spouse or spouses of the
shareholder(s) as well. Kapetanakis’s claim that there was no misrepresentation
in the Indemnity Agreement because his brother had transferred his shares in
the company prior to the issuance of the first bond — making Kapetanakis the
only “owner” at that time — misses the point. There is no evidence that First
National was informed of that change in stock ownership and no indication in
the Indemnity Agreement that the indemnitors, who were purportedly the
owners of all issued and outstanding stock in the corporation at the time the
agreement was signed, were bound only as long as they continued to be
shareholders in the company. Neither is there anything in the Indemnity
Agreement or other record evidence requiring that it be updated or reviewed by
First National contemporaneously with the issuance of each new bond. Indeed,
First National presented testimony that the Indemnity Agreement served as
part of a continuing “master application” and provided indemnity for all future
bonds. Record evidence also suggests that First National required the named
stockholders and their spouses to sign the Indemnity Agreement (1) to ensure
that each stockholder in this closely held corporation was committed to the
success of the business and (2) to circumvent any need to investigate whether
the shares were community property.           The court’s determination that
Kapetanakis forged the signatures on the Indemnity Agreement with the intent
to deceive First National is supported by the record, given, for example, that the
forged signatures were affixed by Kapetanakis contemporaneously with his
signature, but in different cursive styles and in different colored ink.
      The record as a whole supports the determination that First National
actually and justifiably relied on the Indemnity Agreement in issuing the bonds
that gave rise to the debt in question, and that Kapetanakis intended to deceive

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                                   No. 11-20306

First National when he forged the signatures of the other putative indemnitors.
And, it is well established that a settlement agreement of a non-dischargeable
obligation does not convert the debt to one that is dischargeable.2
      For the foregoing reasons, the holding that Kapetanakis’s consent
judgment in favor of First National is non-dischargeable in bankruptcy is
AFFIRMED.




      2
          Id. at 321.

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