Summary
finding that plaintiffs' reliance was not justified under 11 U.S.C. § 523 where defendant promised return of 100% within 15 days of the loan
Summary of this case from Postovit v. Bolling (In re Bolling)Opinion
Case No. 02-74988, Adversary Nos. 03-7335, 03-7336.
May 24, 2006
ORDER
For the reasons set forth in an Opinion entered this day, IT IS HEREBY ORDERED that the debt which is the subject of this adversary proceeding be and is hereby declared dischargeable in Debtor's bankruptcy.
OPINION
This matter is before the Court on the Complaints to Determine Dischargeability of Debt filed in the two above-captioned adversary proceedings. The issue in each adversary is whether the debt owed each Plaintiff is nondischargeable pursuant to 11 U.S.C. § 523(a) (2) (A).
JURISDICTION
This Court has jurisdiction of these cases pursuant to 28 U.S.C. § 157(b) (2) (A) and (B). These are core proceedings.
FACTUAL BACKGROUND The Debtor
Michael H. Curtis ("Debtor") and his wife, Lee Lindsay Curtis, are well-known residents of Quincy, Illinois. For several years prior to and including 2002, Debtor was a fixed base operator at the Quincy Municipal Airport. Debtor also had numerous business dealings relating to aircraft and the aviation industry through his corporation, Curtis Aviation Services, Inc. Debtor was and continues to be involved in the buying and selling of airplanes. Debtor has belonged to professional organizations and has subscribed to numerous trade publications, giving him access to worldwide information about aircraft for sale. Mrs. Curtis is a respected citizen and teacher, and is a member of one of the most prominent families in Quincy.
The Transaction
In February, 2001, Debtor received a telephone call from Kay Khalil, President of Kay Aviation, London, England. Debtor knew of Mr. Khalil as someone who was involved in equestrian air transport from Europe into Louisville and Lexington, Kentucky. Debtor's friend and business acquaintance, Richard Sacks, had mentioned the name of Kay Khalil to the Debtor in relation to a possible business deal. In their first conversation, Mr. Khalil expressed to Debtor his interest in retaining Debtor for consulting, brokering aircraft, and providing related services. Mr. Khalil identified himself as representing a consortium that was interested in purchasing $400 million worth of aircraft for private and commercial use in the European market. In exchange for locating and brokering the purchase of these aircraft, the consortium was willing to pay a brokerage commission of $30 million upon completion of the deal.
Within days after the offer was made, Debtor communicated his willingness to consider the offer further, and Debtor traveled to London in June, 2001, where he met with Mr. Khalil, Desmond Kampson, several alleged representatives of IBL Bank-Luxembourg, and others allegedly representing investors interested in purchasing aircraft. There were 12 to 14 people in the meeting, and the individuals involved in the meeting purportedly represented investors interested in purchasing approximately 17 aircraft ranging from large, commercial jets to smaller, private jets. Mr. Kampson identified himself as the owner of a business known as FSB International PLC. Mr. Kampson indicated that he was an attorney, suggested that he would be acting as an intermediary on behalf of the consortium, and also indicated that he would be serving as Debtor's attorney if Debtor decided to participate in the venture.
After returning to Quincy, Debtor had numerous telephone conversations with Mr. Kampson, and Mr. Kampson requested payment of a $50,000 retainer. Debtor initially balked, but later agreed and, on July 5, 2001, Debtor wired $50,000 to Mr. Kampson.
On August 5, 2001, Debtor, doing business as Curtis Enterprises Associates, and Kay Aviation entered into a Consulting Agreement. Debtor agreed to serve as a broker and consultant to the venture. His duties included locating and procuring aircraft and parts, purchasing fuel, arranging for aircraft maintenance, and providing other services needed to complete the purchase of aircraft. In exchange, Kay Aviation agreed to pay Debtor a $30 million brokerage commission for these services.
In August, 2001, Debtor again flew to London and met again with other representatives working with the consortium. During this trip, Debtor saw aircraft which were purportedly being purchased by the consortium. The topic of transporting aircraft was discussed and Debtor was told that the consortium needed $90,000 for expenses relating to the transporting of aircraft. On September 10, 2001, Debtor wired the $90,000 from Quincy to London.
In September, 2001, Debtor traveled to Amsterdam, The Netherlands and, while there, Debtor was taken to a security vault and shown trunks containing a vast quantity of U.S. currency. Debtor was instructed to randomly extract five $100 bills from one of the trunks to prove that the bills were authentic. Debtor took the funds to an Amsterdam bank which verified that the bills were, indeed, authentic.
Over the course of the next several months, Debtor was instructed repeatedly to wire sums of money to cover various costs and expenses relating to the transaction. In each case, Debtor complied. After advancing close to $200,000 of his own money, Debtor believed that he had substantially completed the project in the fall of 2001. On November 1, 2001, Debtor sent a fax to FSB International PLC requesting payment of his fee for services rendered, as agreed upon in the Consulting Agreement. Debtor received no response to the request, but did receive a telephone call from Mr. Kampson, who indicated that the funds were in Nigeria and would be released to IBL Bank-Luxembourg. Mr. Kampson requested $10,000 to pay for clearance certificates. Debtor sent the $10,000 to Mr. Kampson via Western Union wire transfers. Debtor's fee was not forthcoming.
The Consulting Agreement provided that Kay Aviation "reserves the right of not disclosing all its parties, as they are private investors and buyers who are registered with Kay." Debtor was never told the names of the purchasers and never participated in the sales. Debtor located aircraft and provided seller information to Kay Aviation, but Debtor had no first-hand knowledge that any of the transactions actually took place between Kay Aviation and the putative buyers.
Although Debtor's business associates continued to ask Debtor to wire funds to Europe, and although Debtor continued to comply with these requests, Debtor did not receive any portion of his fee. On December 15, 2001, Debtor sent a fax to Kay Aviation requesting payment of the fee, but again received no response. In spite of this, Debtor continued to advance fees and expenses allegedly associated with the project. On January 16, 2002, IBL Bank-Luxembourg contacted Debtor and claimed that Amro Bank in London would be responsible for paying the commission instead of IBL Bank-Luxembourg. Over the course of the next several weeks, Debtor was given various reasons why the commission could not be transferred to his account in Quincy. Meanwhile, Debtor continued to wire thousands of dollars to Europe at the request of various parties supposedly involved in the transaction.
In April, 2002, a purported representative of Chase Bank contacted Debtor regarding the commission transfer and, on April 22, 2002, Debtor wired $10,000 to another alleged representative of Chase Bank for an "initial opening deposit." On April 29, 2002, Debtor received a fax purportedly from Chase Bank requesting that he forward $490,050 for the "currency marginal fluctuation difference." Debtor then contacted First Bankers Trust Company in Quincy and learned that the term "currency marginal fluctuation difference" did not exist in the banking industry.
Because of his growing concern that he might be involved in a fraudulent scheme, on April 30, 2002, Debtor contacted the Federal Bureau of Investigation at the American Embassy in London. Debtor came to believe that some of the individuals to whom he had been wiring funds were not in any way connected with Mr. Khalil or the airplane transaction, and that they were perpetrating upon him advance fee and bad check swindles. Still, at this point, Debtor testified at trial that it did not occur to him that the entire airplane brokerage transaction might be a scam; Debtor believed merely that a few "bad apples" had permeated the transaction. In any case, Debtor continued to comply with requests that he send funds to Europe for alleged fees and expenses relating to the transaction and to bring about the release of his commission. Meanwhile, Debtor's $30 million commission was allegedly transferred, for some unknown reason, to St. Lucia.
On June 7, 2002, Debtor received a check from Mr. Kampson for $258,675.47. Debtor took the check to First Banker's Trust Company in Quincy to determine the check's validity. The Bank determined the check to be counterfeit. Debtor so advised FSB International PLC, but received no response. Meanwhile, Debtor continued to wire funds for alleged fees and expenses in his efforts to retrieve his commission.
Debtor continued to receive notices that the commission money was being transferred into various accounts in various places, and continued to advance fees and expenses associated with both the alleged transfers and the underlying consulting project. In September, 2002, Debtor's suspicions that he was somehow involved in a fee advancement scam grew and he again contacted the Federal Bureau of Investigation. Yet, Debtor was concurrently being told — and believed — that the $30 million deposit had been made in an account in Debtor's name, and that he would be able to retrieve it. At about the same time, Debtor contacted Scotland Yard and also began working with Canadian authorities to unravel the scheme. Thanks in part to Debtor's cooperation with investigators, Mr. Kampson and others were ultimately arrested and incarcerated.
By the fall of 2002, Debtor had depleted his financial resources in attempting to obtain his $30 million commission, yet Debtor felt that accessing the commission was almost within his grasp. In fact, Debtor received fax confirmation on October 1, 2002, that his commission was in the InterEurope Bank. Debtor contacted Talmadge G. Brenner, a Quincy attorney, sometime prior to October 2, 2002, in order to locate potential lenders to loan him the money he thought he needed to collect the elusive commission. Debtor was prepared to make an offer that sounded too good to be true — he would double or triple an investment in two or three weeks. Mr. Brenner personally loaned Debtor $8,000; Mr. Brenner then telephoned Plaintiff Griffin and informed Mr. Griffin that Mr. Brenner had a client who had funds which were due to him in a European private depository and that, in order to obtain the funds, the client needed a short-term loan, in return for which he was willing to pay a very handsome return.
Plaintiff J. Daniel Griffin
On October 2, 2002, Mr. Griffin met with Debtor. During the meeting, Debtor told Mr. Griffin that, as a result of an airplane transaction, Debtor had approximately $21 million in an offshore account, that he was broke, and that he needed to borrow money to pay an escrow fee to retrieve the money. Debtor offered the aforesaid generous return, and asked to borrow $30,000 from Mr. Griffin. Debtor stated that he intended to find another lender for an additional $20,000. Mr. Griffin expressed a willingness to lend the $30,000 plus the additional $20,000.
Debtor did not make known the history of his difficulties with alleged transfers of the commission from one foreign bank to another over the better part of a year. Debtor did not disclose any suspicions about a fee advancement scheme. He did not reveal his receipt of a counterfeit check, nor did he disclose the information he received regarding the "currency marginal fluctuation difference", nor his contacts with law enforcement. When asked why he failed to disclose these important facts, Debtor stated that he did disclose that he was broke, but that he did not think that the scams and swindles had anything to do with the existence of or the recovery of his commission. Debtor further stated that he would have truthfully disclosed any and all of the troubling information regarding any aspect of the transaction, the quest for his commission, and the scams and swindles, if Mr Griffin had inquired about any of it.
Mr. Griffin testified that Mr. Brenner had told him that Debtor would make good on the notes and would double his investment. Mr. Griffin also testified that the "main thing" which induced him to make the loan was the return on the investment. Mr. Griffin admitted that he considered the perceived wealth of Mrs. Curtis in deciding to make the loan, and he also testified, "the numbers had me in awe."
Mr. Griffin contemporaneously made two loans to Debtor — one for $30,000 and one for $20,000. In return, Debtor gave Mr. Griffin two promissory notes — one for $60,000 and another for $40,000. The notes were prepared by Mr. Brenner and were signed by Debtor in both his individual capacity and on behalf of Curtis Aviation Services, Inc. Both of the notes were payable on October 17, 2002 — just 15 days after the notes were made, resulting in an annual percentage rate of over 2400%. When the notes came due, Debtor had not obtained the commission. Debtor failed to pay the notes, and Mr. Griffin threatened to sue. Debtor asked for more time and more money. Mr. Griffin told Debtor that he could not lend Debtor any more money unless the loan was collateralized. Mr. Griffin ultimately loaned Debtor an additional $20,000. In return, Mr. Griffin received security in the form of a Gator, a tractor, and a Rolex watch. Mr. Griffin took the Rolex, but allowed Debtor to retain possession of the Gator and the tractor. (This "secured" loan is not the subject of this proceeding. Its existence and terms are recounted here only for factual background.)
To obtain Mr. Griffin's forbearance, on November 14, 2002, Debtor agreed to give Mr. Griffin a new note for $300,000, and the new note, which was dated November 11, 2002, was due on November 30, 2002. No payments were ever made on the $300,000 note.
Plaintiff Lloyd A. Johnson
Mr. Johnson's situation follows a similar fact pattern. Mr. Brenner telephoned Mr. Johnson and informed him that Mr. Brenner had a client who had funds which were in a European private depository and that, in order to obtain the funds, the client needed short-term loans. Debtor tried repeatedly to reach Mr. Johnson via telephone and showed up at his office. During their first meeting, Debtor told Mr. Johnson about the airplane brokerage transaction, that he was due a large commission, that he was out of money, and that he needed to borrow $60,000 to pay an escrow fee to retrieve the money. Mr. Johnson asked who the other investors were, and Debtor disclosed the names of Mssrs. Brenner and Griffin.
After his conversation with Debtor, Mr. Johnson told Mr. Brenner that he had looked into Debtor's finances and that all of his assets were leveraged. Mr. Johnson also told Mr. Brenner that the deal "didn't sound right", "smelled fishy", and "didn't add up". In spite of this, Mr. Brenner testified that Mr. Johnson said that he felt that Mrs. Curtis would make good on any note Debtor signed because Mr. Johnson felt that Mrs. Curtis would not allow her husband to go under.
Mr. Brenner and Mr. Johnson had differing recollections about when this conversation between the two of them took place. Mr. Johnson testified that it was after he had made the loan to Debtor. Mr. Brenner testified that he was certain that it was before Mr. Johnson had made the loan, because Mr. Brenner testified that he was surprised to receive a call from Debtor asking him to prepare the note. The Court found both Mr. Brenner and Mr. Johnson to be credible witnesses. However, both witnesses cannot be correct. Based upon his certainty and the fact that he recalls the specific chronology of when the conversation was in relation to the preparation of the note, the Court credits Mr. Brenner's testimony over Mr. Johnson's on this point.
As with Mr. Griffin, Debtor did not make known the history of his difficulties with alleged transfers of the commission from one foreign bank to another over the better part of a year. Debtor did not disclose any suspicions about a fee advancement scheme. He did not reveal his receipt of a counterfeit check, nor did he disclose the information he received regarding the "currency marginal fluctuation difference", nor his contacts with law enforcement. When asked why he failed to disclose these important facts, Debtor again stated that he did not think that the scams and swindles had anything to do with the existence of, his entitlement to, or the recovery of his commission. Debtor further stated Mr. Johnson seemed rushed and uninterested in any details relating to the transaction. At no point prior to making the loan did Mr. Johnson ask Debtor any substantive questions about the transaction.
Mr. Johnson advanced $60,000 to Mr. Curtis on October 10, 2002, in return for a promissory note in the amount of $150,000 payable on October 28, 2002. The note was prepared by Mr. Brenner and was signed by Debtor in both his individual capacity and on behalf of Curtis Aviation Services, Inc. Mr. Johnson testified that he relied primarily on Mr. Brenner's comments and tacit endorsement in deciding to make the loan.
The note was not paid, and Mr. Johnson obtained a judgment against Mr. Curtis in the amount of $158,596.16 on November 8, 2002.
Denouement
In his quest to obtain his $30 million commission, Debtor made numerous trips to Europe and advanced hundreds of thousands of dollars towards alleged fees, expenses, and bank charges. A Secret Service Investigative Report, admitted into evidence as Plaintiffs' Exhibit 4, chronicles well over 40 wire transfers made in relation to this matter by Debtor to various destinations and in various amounts. These transfers occurred between July, 2001, and November, 2002, in amounts ranging from $300 to $125,000. In spite of all of these advances, and in spite of Debtor's final attempts to obtain his unpaid commission through loans from the Plaintiffs and Mr. Brenner, the commission never materialized. Other than the $500 extracted from the trunks in the secured vault in Amsterdam, Debtor received no portion of his commission.
Debtor filed a petition pursuant to Chapter 11 of the Bankruptcy Code on November 18, 2002. The bankruptcy case was converted to Chapter 7 on August 20, 2003. Mr. Griffin filed a claim for $400,000 and Mr. Johnson filed a claim for $150,904.09. Both Plaintiffs seek a determination that the debt owed to them is nondischargeable pursuant to 11 U.S.C. § 523 (a) (2) (A).
Even after filing bankruptcy, Debtor continued to pursue the commission. In the spring of 2003, Debtor sought the help of Michael Smith, a self-employed personal consultant of Indianapolis, Indiana. Mr. Smith testified that he traveled to and spent months in Europe on behalf of the Debtor and that he eventually located what he thought was the $30 million commission at the Chad Embassy in Brussels, Belgium. Mr. Smith further testified that he and the Debtor visited the Embassy, were taken in and shown the commission (which was identified by an Embassy representative as "your cargo" and which was in the form of Swiss francs) and inspected it. Mr. Smith continued to work for the release of the commission until early 2004. His efforts were unsuccessful.
The Secret Service Investigative Report indicates that the Debtor was a victim of a brokerage scheme known as "Nigerian 419". The Report also indicates that the United States Attorney for the Central District of Illinois was contacted on February 21, 2003, regarding the investigation, and that a representative of that office indicated that they would be interested in federal prosecution of any suspects involved in the scheme. The record makes no reference to any further developments.
LEGAL ANALYSIS
Section 523(a) (2) (A) of the Bankruptcy Code provides as follows:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by —
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition(.)
In order to prove a case under this provision, courts have traditionally required a plaintiff to prove that (i) the debtor made false statements which he knew to be false, or which were made with such reckless disregard for the truth as to constitute willful misrepresentations; (ii) the debtor possessed the requisite scienter, i.e. he actually intended to deceive the plaintiff, and (iii) to his detriment, the plaintiff justifiably relied on the representations. Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 446 (1995); In re Mayer, 51 F.3d 670, 673 (7th Cir. 1995), cert. denied 116 S.Ct. 563 (1995); In re Sheridan, 57 F.3d 627, 635 (7th Cir. 1995); In re Scarlata, 979 F.2d 521, 525 (7th Cir. 1992). A plaintiff bears the burden of proof and must prove each element by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 286-87 (1991). Exceptions to discharge are to be construed strictly against a creditor and liberally in favor of a debtor. Scarlata, supra, 979 F.2d at 524.
I. The debtor made false statements which he knew to be false, or which were made with such reckless disregard for the truth as to constitute willful misrepresentations.
In the case at bar, both Plaintiffs testified that they asked Debtor if there were any problems with the transaction, and that the Debtor replied in the negative. Debtor denied being asked that question by either Plaintiff, but later testified that he did not recall any specific conversation with either Plaintiff about problems with the transaction. Neither of the Plaintiffs nor the Debtor testified definitively or convincingly on this point. Accordingly, the Court cannot make a finding that Debtor did or did not misrepresent to one or both of the Plaintiffs that there were no problems with the transaction.
However, a debtor's silence regarding a material fact can constitute a false representation under § 523(a) (2) (A). See 4 Collier on Bankruptcy § 523.08 [1] [d] (15th ed. rev.); In re Van Horne, 823 F.2d 1285 (8th Cir. 1987); In re Docteroff, 133 F.3d 210, 216 (3d Cir. 1997) ( quoting Van Horne, supra);In re Weinstein, 31 B.R. 804, 809 (Bankr. E.D.N.Y. 1983) ("false pretense involves an implied misrepresentation or conduct intended to create and foster a false impression"); In re Maier, 38 B.R. 231, 233 (Bankr. D. Minn. 1984); In re Samford, 39 B.R. 423, 427 (Bankr. M.D. Tenn. 1984). A borrower has a duty to divulge all material facts to a lender. In re Newmark, 20 B.R. 842, 855 (Bankr. E.D.N.Y. 1982). "While it is certainly not practicable to require the debtor to `bare his soul' before the creditor, the creditor has the right to know those facts touching upon the essence of the transaction." Van Horne, supra, 823 F.2d at 1288.
Because the Court has found that the Plaintiffs failed to prove that the Debtor made an affirmative misrepresentation, the next critical question becomes: In Debtor's conversations with the Plaintiffs pre-dating the lending of money to the Debtor, did Debtor's willful omissions of details relating to the problems with the transaction, i.e. the indications regarding scamming and/or swindling, the law enforcement contacts, etc., constitute a willful misrepresentation, by way of behavior conveying a false impression, for purposes of § 523(a) (2) (A)?
The question must be answered in the affirmative. Granted, the Debtor did not refuse to answer any questions, nor did he indicate that there was any topic that was "off limits" in his conversations with the Plaintiffs. However, a synopsis of the circumstances under which the Debtor parted with hundreds of thousands of dollars of his own money, the purported movement of the commission from one foreign bank to another, and the details relating to the scamming by some individuals who were involved in the transaction cried out for disclosure. Even in the absence of a question, the information should have been revealed, and Debtor's failure to disclose it was not inadvertent. Debtor's calculated concealment of such information constitutes a willful misrepresentation under 11 U.S.C. § 523(a) (2) (A).
II. The debtor possessed the requisite scienter, i.e. he actually intended to deceive the plaintiff.
"Proof of intent to deceive is measured by the debtor's subjective intention at the time the representation was made."In re Monroe, 304 B.R. 349, 356 (Bankr. N.D. Ill. 2004); see also Mercantile Bank v. Canovas, 237 B.R. 423, 428 (Bankr. N.D. Ill. 1998). Where a person knowingly or recklessly makes false representations which the person knows or should know will induce another to act, the finder of fact may logically infer an intent to deceive. In re Sheridan, supra, 57 F.3d at 633; In re Kimzey, 761 F.2d 421; In re Jairath, 259 B.R. 308, 315 (Bankr. N.D. Ill. 2001).
The Court finds that the second element of § 523 (a) (2) (A) was proven by both Plaintiffs. Debtor admitted that he did not tell either Plaintiff about the scamming, etc., because he thought doing so would cause them not to loan him money. At the time he sought loans from the Plaintiffs, Debtor may well have hoped that all of the fraudulent activity and all of those who were perpetrating the scamming were unrelated to the airplane brokerage transaction. Debtor may also have believed in the existence and attainability of the $30 million commission. It also well may be that the Debtor hoped that the Plaintiffs' proposed loans to him were not at great risk of loss and that the elusive commission truly would be forthcoming within just a matter of weeks. However, at the time of Debtor's conversations with the Plaintiffs pertaining to the borrowing and lending of money, Debtor had already been in contact with and had been working with law enforcement, had already spent the better part of a year trying to gain possession of the elusive $30 million commission, and had been advised that the commission had been transferred from one foreign bank to another at least three times. Given these circumstances, and given the Debtor's admission that he was concerned that the Plaintiffs would not make the loans if they knew of these facts, there can be little doubt that the Debtor had the requisite intent to deceive when he failed to disclose the material facts and history surrounding the subject dealing.
III. Justifiable reliance.
Reliance on a false pretense or false representation under § 523 (a) (2) (A) must be "justifiable." Field v. Mans, supra, 516 U.S. at 74-75. Justifiable reliance is an intermediate level of reliance; it is less than reasonable reliance, but more than mere reliance in fact. Id. Whether a party justifiably relies on a misrepresentation is determined by looking at the circumstances of a particular case and the characteristics of a particular plaintiff, not by an objective standard. Id. To satisfy the reliance element of § 523 (a) (2) (A), the creditor must show that the debtor made a material misrepresentation that was the cause-in-fact of the debt that the creditor wants excepted from discharge. Mayer, supra, 51 F.3d at 676 ("Reliance means the conjunction of a material misrepresentation with causation in fact.").
Justifiable Reliance — Plaintiff Griffin
Plaintiff Griffin failed to prove that he justifiably relied on the Debtor's misrepresentations. In his sole meeting with the Debtor prior to lending the Debtor $50,000, Mr. Griffin testified that he talked with the Debtor very briefly about the transaction and asked very few questions. When asked whether he specifically inquired about how the money was earned or how it came to be located in a specific bank, Mr. Griffin admitted that he never asked these questions and that the answers did not matter to him. In fact, Mr. Griffin admitted that he had virtually no recollection of anything the Debtor said or did upon which Mr. Griffin relied in deciding to sign the promissory notes of October 2, 2002. Mr. Griffin made no realistic examination, asked for no financial statement, no documentation showing that the Debtor was entitled to the airplane transaction commission, or any other documentation, before making the loan. In spite of what could only be characterized as willful ignorance on the part of Mr. Griffin about the entire transaction, when asked by the Debtor for a loan of $30,000, Mr. Griffin volunteered to increase his participation from the $30,000 requested to $50,000.
Mr. Griffin testified that the promised return on his investment was the "main thing" which induced him to make the loan. Debtor promised a 100% return in 15 days, and Mr. Griffin stated that he was in "awe" of the numbers. Mr. Griffin also testified that he relied heavily on a perceived factor which the Debtor never advanced or suggested: his wife's wealth and the fact that she would ultimately make good on any indebtedness the Debtor incurred. Mr. Griffin also stated that the fact that Mr. Brenner was financially involved and that he had made the introduction of the Debtor to Mr. Griffin was a factor in Mr. Griffin's decision to lend the money.
"[A] plaintiff must use his senses; he must use the opportunity to make a cursory examination." Field v. Mans, supra 516 U.S. at 71. Simply put, Mr. Griffin did not use his senses before he made the decision to make a loan to the Debtor. The Debtor told Mr. Griffin that he was broke and did not want to involve his wife in the transaction. Mr. Griffin, an experienced businessman, should have and would have made further inquiry of the Debtor if Mr. Griffin, in deciding whether to make the loan, were relying on anything the Debtor did or did not represent. The weight of the evidence suggests that Mr. Griffin relied upon a variety of factors in deciding to lend the Debtor money — the promised return on investment, Mr. Brenner's participation, the perceived wealth of the Debtor's wife — but he did not rely on anything the Debtor said or did not say in deciding to make the loan. Thus, Plaintiff Griffin has failed to prove justifiable reliance on the Debtor's misrepresentations.
Justifiable Reliance — Plaintiff Johnson
Plaintiff Johnson has also failed to prove that he justifiably relied on the Debtor's misrepresentations. As with Mr. Griffin, the weight of the evidence established conclusively that there was no justifiable reliance by Mr. Johnson on what the Debtor did or did not say in his efforts to persuade Mr. Johnson to lend him money.
Mr. Johnson testified that he was too busy to meet with the Debtor and that the Debtor kept calling and pestering him. When they finally met, Mr. Johnson testified that he remembers the Debtor talking a lot and taking up his time. Mr. Johnson recalled the discussion insofar as it pertained to the repayment terms, the timetable of the loan, and the return, and he remembered asking the identity of the other investors. However, Mr. Johnson did not recall making any inquiries about the nature of the transaction or how long it had been ongoing. Like Mr. Griffin, Mr. Johnson seemed content to remain in the dark about the specifics of the transaction. To the extent he looked into the Debtor's finances or the underlying transaction, all evidence was contraindicative of making the loan, and Mr. Johnson expressed that to Mr. Brenner. In spite of this, Mr. Johnson decided to go forward; a note was drawn up right away, the note was executed, and the money changed hands, all without any request for further information or without any further substantive conversation between Mr. Johnson and the Debtor.
Mr. Johnson testified that he relied primarily on Mr. Brenner's comments and personal participation in deciding to make the loan. In addition, Mr. Brenner testified that Mr. Johnson stated conclusively that he felt that Mrs. Curtis would make good on any note that the Debtor signed. It was clear from his testimony that Mr. Johnson was uninterested in the details of the transaction or in anything else the Debtor had to say. Mr. Johnson admitted that he was willing to assume a substantial risk in hopes of a substantial payoff. Mr. Johnson, also an experienced businessman, testified that he had speculated before, and that he was mindful of the correlation between risk and reward. In this instance, the ending was not a happy one, but the fact remains that Mr. Johnson, like Mr. Griffin, relied on factors other than the Debtor's statements or omissions in deciding to make the loan. Accordingly, Plaintiff Johnson has failed to prove justifiable reliance on the Debtor's misrepresentations.
CONCLUSION
A plaintiff bears the burden of proof and must prove each element by a preponderance of the evidence. Grogan v. Garner, supra, 498 U.S. at 286-87. Exceptions to discharge are to be construed strictly against a creditor and liberally in favor of a debtor. Scarlata, supra, 979 F.2d at 524.
In both of these adversary cases, Mr. Griffin and Mr. Johnson failed to prove justifiable reliance on the Debtor's willful misrepresentations by omission. The promised return of 100% within 15 days of the loan was a clear red flag that this was a high-risk speculative venture. See Tomlinson, 199 WL 294879, *12 (Bankr. N.D. Ill.). Promises that sound too good to be true usually turn out to be just that — too good to be true. U.S. v. Frykholm, 362 F.3d 413 (7th Cir. 2004) (promise of 100% return in a month transparently too good to be true).
Both Defendants testified that they have, from time to time, undertaken business or financial ventures where they have earned significant returns in short periods of time. The Court does not doubt that savvy and seasoned businessmen with their eyes and ears open may, from time to time or, perhaps, even often, put together deals with substantial profit margins in short periods of time. However, that scenario is far different from the situation present in this case, which involved the promise of a 100% return in 15 days for lending money to a total stranger who admitted that he was broke and unable to obtain funds from any conventional source, including his reputedly affluent wife.
For the reasons set forth above, Defendants' complaints must fail. The Court finds that the debts subject to these proceedings which are owed to the Plaintiffs are dischargeable in Debtor's bankruptcy.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
IT IS SO ORDERED.