JOHN W. deGRAVELLES, JUDGE.
THIS MATTER is before the Court on an Appeal of the United States Bankruptcy
Worley filed an individual Chapter 11 bankruptcy case on January 8, 2018. (Doc. 1 in Bankruptcy Case No. 18-10017.) Callais is a creditor in Worley's bankruptcy case and filed an adversary proceeding seeking to declare the debt Worley owed Callais non-dischargeable under 11 U.S.C. 523(a)(2)(B). (Doc. 1 in Adversary Proceeding No. 18-1021.) Callais filed a Motion for Summary Judgment Against Michael Allen Worley Pursuant to 11 U.S.C. § 523(a)(2)(B) ("Motion"). (Doc. 39 in Adversary Pro. 18-1021). Worley opposed the Motion. (Docs. 45 & 46 in Adversary Pro. 18-1021.) On May 22, 2019, the Bankruptcy Court held a hearing and heard arguments on the Motion. (Doc. 65 in Adversary Pro. 18-1021.) At the May 22, 2019 hearing, the Bankruptcy Court granted the Motion and gave oral reasons explaining its decision. Id. Summary Judgment in favor of Callais was entered on June 10, 2019. (Doc. 61 in Adversary Pro. 18-1021.) On June 21, 2019, Worley filed the Notice of Appeal, which asks the Court to review the Bankruptcy Court's decision on summary judgment. (Doc. 63 in Adversary Pro. 18-1021.)
When Worley filed his bankruptcy case, he controlled numerous business entities including SQOR, Inc. and W Resources, LLC. (Doc. 39-4 in Adversary Pro. 18-1021 at 25:1-3.) Michael Hammer ("Hammer") was Worley's representative in dealing with Callais to obtain financing for himself and the personal entities he controlled. (Id. at 34:17-21.) Worley worked with Hammer to create a "global recapitalization" of his existing debts. (Id. at 51:15-16.) Worley was successful at obtaining financing. As of the date that Debtor filed his bankruptcy case, Worley owed Callais $28,847,447.80. The total indebtedness came from Worley's unconditional personal guarantee of Callais' loans to SQOR ("Unconditional SQOR Guarantee") and from his personal loans from Callais. (Id. at 43:16-24.)
When Worley was seeking personal financing from Callais, he engaged the Hannis T. Bourgeois accounting firm ("Accounting Firm") to compile a global financial statement ("Financial Statement"). (Id. at 34:17-21.) Worley signed an engagement letter with the Accounting Firm in which he agreed that accuracy of the financial statement was his sole and exclusive responsibility, and that he was obligated to furnish the Accounting Firm with accurate information regarding his assets and liabilities. (Doc. 39-9 at 35:7-41:7.) Worley sent the Accounting Firm documentation
Worley admitted he lied on the Certification Letter and that the Financial Statement was materially false. (Doc. 39-4 at 110:5-113:10; and 67-86.) The Financial Statement omitted millions of dollars in debt and incorrectly listed some assets, including mineral rights and subsidiary inventory, as unencumbered when, in fact, they served as security for other indebtedness. (Id.) Even though he was aware of the falsity of the Financial Statement, Worley sent the Financial Statement to Hammer, who as Worley's "go-between" with Callais and cognizant of Worley's need for financing, sent the Financial Statement to Callais. (Doc. 39-4 at 52.) Worley knew Hammer was seeking financing on his behalf. (Doc. 39-4 at 51.) On March 7, 2016, Hammer forwarded an email to Worley that included a page from the Financial Statement and asked Worley for a follow up call. (Doc. 39-3 at 65.) As such, Worley knew on March 7, 2016 that Hammer had shared the Financial Statement with prospective lenders. (Id.) On March 29, 2016, Hammer forwarded Callais the email from the Accounting Firm with the Financial Statement attached. (Doc. 39-3 at 65.) Hammer's email to Callais stated, "Gentlemen, attached is a (12-31-15) PFS for Mike Worley. The $3MM CCM loan is not reflected on his statement." (Id.)
The Court reviews the Bankruptcy Courts decision to grant summary judgment de novo. Matter of Dallas Roadster, Ltd., 846 F.3d 112, 123 (5th Cir. 2017) The Court "may affirm on any ground raised below and supported by the record, even if the [bankruptcy] court did not reach it." Williams v. J.B. Hunt Transp., Inc., 826 F.3d 806, 810 (5th Cir. 2016).
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute of material fact is genuine if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.
The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine [dispute] of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). In responding to a properly supported motion for summary judgment, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material fact." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). The nonmovant must "go beyond the pleadings" and submit competent evidence demonstrating "specific
The Fifth Circuit has further explained:
Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263 (5th Cir. 1991).
The Bankruptcy Court granted summary judgment for the Appellee, maintaining that there were no genuine disputes of material facts as to each element 11 U.S.C. § 523(a)(2)(B). As a threshold issue, the Bankruptcy Court determined that Callais had proven that Hammer was Worley's agent, explaining:
(Doc. 3-2, Oral Reasons, 21:4-22:5.) The Bankruptcy Court likewise found that Hammer had the apparent authority to transmit the Financial Statement to Callais, stating
(Doc. 3-2, Oral Reasons, 23:16-24:16)
Applying the elements under 11 U.S.C. § 523(a)(2)(B); first, the Bankruptcy Court found that the Financial Statement was a statement in writing that is materially false respecting the debtor's financial condition. (Doc. 3-2 at 22:15-22.) Second, the Bankruptcy Court detailed that Callais' reliance on the Financial Statement was reasonable because:
(Doc. 3-2, Oral Reasons, 24:17-25:20.)
Last, the Bankruptcy Court detailed that the totality of the circumstances showed Worley acted with a reckless disregard for the truth sufficient to produce an inference that he possessed intent to deceive within the meaning of § 523(a)(2)(B). The Bankruptcy Court explained:
(Doc. 3-2, Oral Reasons, 26:8-27:13.)
Appellant argues that summary judgment was not appropriate because in the Bankruptcy Court there were genuine disputes of material facts. Specifically, Appellant asserts that the Bankruptcy Court,
(Doc. 6 at 11.) Therefore, Appellant challenges whether the Bankruptcy Court correctly determined (1) that Hammer was Worley's agent for the purpose of obtaining personal financing; (2) whether Callais' reliance on the Financial Statement was reasonable; and (3) whether Worley had the requisite intent to deceive. (Doc. 6 at 11-13.)
First, as to whether Hammer was Worley's agent for the purpose of finding personal funding and therefore authorized to send the Financial Statement, Appellant argues:
(Doc. 6 at 13.)
Second, as to whether Callais' reliance was reasonable, Appellant asserts that Callais' reliance was not reasonable because of the "red flags" present on the Financial Statement. Specifically, Appellant argues:
(Doc. 6 at 13-14.)
Third, as to whether Worley had the requisite intent, Appellant maintains:
(Doc. 6 at 12-13.) Therefore, based on these disputes of material facts, Appellant states that summary judgment was not appropriate.
Appellee argues that there are no genuine disputes of material facts and that the Court should affirm the Bankruptcy Court's ruling that Worley's indebtedness is nondischargeable in bankruptcy. (Doc. 7 at 18.) Appellee points out that there are no genuine disputes of material fact because:
(Doc. 7 at 18.) Appellee maintains that each of the elements under 11 U.S.C. § 523(a)(2)(B) were correctly determined by the
First, Callais details that there is no dispute that the Financial Statement is a materially false written statement regarding Worley's financial condition. (Doc. 7 at 11.) Second, Appellee argues that Callais' reliance on the Financial Statement was reasonable because:
(Doc. 7 at 12.) Appellee maintains that Appellant's arguments to the contrary are unavailing. For example, Appellee points out that given the history and course of dealing between the parties, it was not abnormal for Worley to not be copied on emails because he relied on Hammer as his representative and never spoke with or dealt with lenders personally. (Doc. 7 at 13.) In addition, Appellee notes that the "glaring omission" of the secured debt owed to Callais by W Resources, was not a glaring omission because Hammer's email transmitting the Financial Statement stated, "The $3MM CMM loan is not reflected on his statement." (Doc. 7 at 14.) Moreover, Appellee posits that there is no evidence, outside of Appellant's arguments, that Callais' due diligence was lacking. (Doc. 7 at 14.) Therefore, Appellee maintains that the Bankruptcy Court properly found that Callais reasonably relied on the Financial Statement. (Doc. 7 at 14.)
Third, Appellee argues that as a result of Worley's reckless disregard for the truth, he intended to deceive Callais as a matter of law. (Doc. 7 at 14.) Appellee asserts a "creditor can establish intent to deceive by proving reckless indifference to, or reckless disregard of, the accuracy of the information in the financial statement of the debtor when the totality of the circumstances supports such an inference." (Doc. 7 at 14 (quoting In re Perry, 547 B.R. 650, 654 (Bankr. M.D. La. 2016)).) Further that as a matter of law, a "borrower's lack of care when signing loan documents evidences a reckless disregard for the correctness of the information in the application and thus establishes intent to deceive for purposes of applying section 523(a)(2)." (Doc. 7 at 14-15 (quoting, In re Perry, 547 B.R. at 654).)
Appellee details that Worley had a "shocking degree of recklessness with respect to the truth or falsity of the loan documents" he signed. Appellee directs the Court to Worley's deposition testimony that he never read the Unconditional SQOR Guarantee, or the Certification Letter and when questioned, "even though you sign something, that's not a guaranty that the contents of the document you signed are accurate?" Worley responded,
Last, Appellee asserts that Worley has no defense to Callais' claim. Appellee states that the argument that Hammer was not authorized to share the Financial Statement is without merit because: (1) Hammer testified that he was specifically authorized to share the Financial Statement with Callais; (2) by March 7, 2016 Worley knew that Hammer was sharing the Financial Statement with various lenders; (3) the argument was waived as an untimely affirmative defense; and (4) Hammer had actual and apparent authority to provide the Financial Statement to Callais and Worley is bound as the principal. (Doc. 7 at 17.)
The Supreme Court has explained:
Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). The nondischargeability provision in 11 U.S.C. § 523(a)(2)(B) excepts an individual debtor from discharge from any debt that is:
11 U.S.C. § 523(a)(2)(B); see Matter of Norris, 70 F.3d 27, 29 (5th Cir. 1995) ("Section 523(a)(2)(B) of Title 11 of the United States Code creates a rule of non-dischargeability for any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained, by use of a statement in writing—(i) that is materially false; (ii) respecting the debtor's or an insider's financial condition; (iii) on which the creditor to whom the debtor is liable for such ... credit reasonably relied; and (iv) that the
A statement in writing is materially false respecting a debtor's financial condition when "it `paints a substantially untruthful picture of a financial condition by misrepresenting information of the type which would normally affect the decision to grant credit.'" In re Perry, 547 B.R. 650, 654 (Banks. M.D. La. 2016) (quoting, Matter of Norris, 70 F.3d 27, 30 (5th Cir. 1995)) (emphasis in original). As to the next element, a creditor's reasonable reliance, the Fifth Circuit explained that a creditor's reasonable reliance
Matter of Coston, 991 F.2d 257, 261 (5th Cir. 1993). Last, as to the requisite intent under § 523(a)(2)(B), the Fifth Circuit explains, "A judge may look at the totality of the circumstances and infer an intent to deceive when `[r]eckless disregard for the truth or falsity of a statement combined with the sheer magnitude of the resultant misrepresentation may combine' to produce such an inference." In re Morrison, 555 F.3d 473, 482 (5th Cir. 2009). Furthermore,
In re Perry, 547 B.R. 650, 654 (Bankr. M.D. La. 2016) (internal quotations and citations omitted).
Although nondischargeability is a matter of bankruptcy law, whether there is an agency relationship is a matter of state law. In Bolous v. Morrison, the Louisiana Supreme Court set out the parameters of the agency relationship also known as mandate under the Louisiana Civil Code. 503 So.2d 1, 3 (La. 1987). The Louisiana Supreme Court stated:
Boulos v. Morrison, 503 So.2d 1, 3 (La. 1987) (internal citations omitted); see Ledet
In short, the Court agrees with the findings and conclusions of the Bankruptcy Court. However, the Court will address Appellant's arguments regarding whether there were genuine disputes of material facts.
First, as to the agency relationship, to the extent that Appellant has not waived the issue by not arguing it below, the Court concludes that Hammer had both actual and apparent authority to act as Worley's agent in connection with obtaining financing from Callais. Worley's deposition transcript repeatedly states that Hammer was his "representative" "liaison" and "agent" in dealing with creditors to secure loans for SQOR, W Resources, Inc., and himself. Further, Hammer's deposition testimony details that he acted as the "go-between" for Callais and Worley on each of the financing arrangements. The documentary evidence attached to the depositions—including emails between the SQOR board members, Hammer, and Worley—also shows Hammer was involved in the transactions as Worley's agent for matters involving financing from Callais. Moreover, the history and dealings of the parties, including the previously paid loan from Callais to SQOR, which was facilitated by Hammer, granted Hammer the apparent authority to act on Worley's behalf in obtaining financing from Callais. The Bankruptcy Court, therefore did not err in determining that Callais had established that Hammer had the actual and apparent authority to act as Worley's agent.
Second, whether Callais' reliance was reasonable, the Court is likewise unpersuaded by Appellant's arguments. As an initial matter, the Court agrees with the Bankruptcy Court that argument regarding Callais' secured loan being omitted is meritless. The email from Hammer to Callais explains that the loan is omitted; therefore, its exclusion from the Financial Statement would not raise a red flag. Further, the history and course of dealings between the parties adequately explains why it was not a "red flag" that Worley was not included in the financing discussions, because he had not previously been involved in those matters. Appellant's other "red flags" are equally unconvincing and do not change the Court's analysis that Callais reasonably relied on the Financial Statement.
Third, the Bankruptcy Court was correct in finding that Worley acted with a reckless disregard for the truth in causing the Financial Statement to be given to Callais and therefore as a matter of law acted with the requisite intent to deceive. Worley's actions demonstrate his cavalier and reckless disregard for the truth. First, when signing the engagement letter with the Accounting Firm, Worley agreed that the accuracy of the financial statement was his sole and exclusive responsibility, and that he was obligated to furnish the Accounting Firm with accurate information regarding his assets and liabilities; Worley did not furnish the Accounting Firm with accurate information. Next, on March 4, 2016, when Worley received the Financial Statement, he signed the Certification Letter and represented that all information he provided was true and correct; however, as he admitted, the information was not correct and the Financial Statement was materially false. The Financial Statement
Worley's explanation boils down to: although, the documents were false, he did not know they were false because he did not read them. Therefore, he could not intend to deceive because he was not even aware of the facts. The Court does not agree. In re Tully, 818 F.2d 106, 111 (1st Cir. 1987) ("A debtor cannot, merely by playing ostrich and burying his head deeply enough in the sand, disclaim all responsibility for statements he has made under oath"). Worley is a highly sophisticated businessperson who was actively seeking financing for himself and the companies with which he was associated. Worley's pattern and practice of providing incomplete and false documents to the Accounting Firm, failing to read the documents associated with his finances, and making representations without knowledge of the accuracy or veracity of the information demonstrates his reckless disregard for the truth.
Worley's assertion on appeal—that there is no undisputed evidence that Worley knew that Callais had seen the Financial Statement, much less that it relied on it for any purposes because he was not copied on the March 29, 2016 email from Hammer to Callais transmitting the Financial Statement—is unpersuasive. (Doc. 6 at 13.) The undisputed evidence shows that Worley knew by March 7, 2016 that Hammer was sharing the Financial Statement with prospective lenders. Thereafter, Worley did not stop Hammer from disclosing the Financial Statement to other lenders or withdraw Hammer's authority to act as his agent. Worley's refusal to take action to either stop Hammer from pursuing financing on his behalf with his false Financial Statement or to correct the Financial Statement with Callais again demonstrates his reckless disregard to the truth. See In re Morrison, 361 B.R. 107, 126 (Bankr. W.D. Tex. 2007), aff'd sub nom. W. Builders of Amarillo, Inc. v. Morrison, No. A-07-CA-292-SS, 2007 WL 9710033 (W.D. Tex. Aug. 8, 2007), aff'd sub nom. In re Morrison, 555 F.3d 473 (5th Cir. 2009) ("Where a debtor knew or should have known of errors in a financial statement and he fails to correct the error, it may be inferred that he has intended to deceive the creditor.") Therefore, as the Bankruptcy Court correctly found, based on the totality of the circumstances, Worley acted with a reckless indifference for the truth and thereby intended to deceive Callais.
The Court finds that the Bankruptcy Court correctly determined that each of the elements under § 523(a)(2)(B) was met, and therefore, the judgment of the Bankruptcy Court is affirmed.
Accordingly,
