Cordell v. Sturgeon (In re Sturgeon)
496 B.R. 215
| 10th Cir. BAP | 2013Background
- Debtor is a veterinarian involved in cattle operations and co-owns S & D Cattle, LLC with his father; they and 20/20 Cattle & Consulting, LLC engage in commodity trading.
- Bank loans to Debtor and S & D prior to 2009 were secured by cattle, with proceeds tied to cattle purchases and sales made jointly to Debtor and Bank as lienholder.
- Debtor and family create a sham Sturgeon Partnership to market cattle and route sale proceeds away from Bank, with Thigpen Livestock as buyer and 30-per-head down payments paid to the Partnership.
- Sale proceeds from cattle transferred through the Sturgeon Partnership and the Vet Clinic were not remitted to the Bank, impairing the Bank’s lien and supervision over collateral.
- Debtor and family divert loan advances and sale proceeds to a commodity account and margin calls, causing depreciation of collateral and missing cattle (about 896 head, roughly $450,000).
- Bank filed state court actions; Debtor filed Chapter 7; Bank seeks non-dischargeability under 11 U.S.C. §523(a)(2)(A) and (B); bankruptcy court held Debtor engaged in a pattern of fraudulent activity and issued judgment in favor of Bank.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor engaged in a pattern of fraudulent conduct under §523(a)(2)(A). | Sturgeon participated in a fraudulent scheme with misrepresentations and false pretenses. | Debtor was not a knowing participant; his father acted without his knowledge. | Not clearly erroneous; Debtor active participant in fraudulent scheme. |
| Whether Debtor’s misrepresentations or omissions to obtain loans support §523(a)(2)(A). | Misrepresentations and false pretenses influenced Bank’s lending decisions. | Any misstatements were not knowingly made by Debtor or were caused by his father. | Supported by record; misrepresentations/omissions found. |
| Whether Sturgeon Partnership and Vet Clinic were used to divert cattle sale proceeds from the Bank. | Funds diverted to Partnership/Vet Clinic to deprive Bank of proceeds. | Formation was legitimate marketing; funds properly handled. | Not clearly erroneous; evidence supports diversion from Bank. |
| Whether Debtor’s financial statements were false under §523(a)(2)(B). | Financial statement omissions/significant undisclosed accounts misled Bank. | Statement not false; filed before commodity accounts existed. | Court did not reach this issue on appeal (affirmed §523(a)(2)(A) ruling). |
Key Cases Cited
- Fowler Bros. v. Young (In re Young), 91 F.3d 1367 (10th Cir.1996) (reliance standards under §523(a)(2)(A))
- Copper v. Lemke (In re Lemke), 423 B.R. 922 (10th Cir. BAP2010) (intent to deceive inferred from totality of circumstances)
- Diamond v. Vickery (In re Vickery), 488 B.R. 680 (10th Cir. BAP2013) (actual fraud within §523(a)(2)(A) may extend beyond express misrepresentations)
- Marks v. Hentges (In re Hentges), 373 B.R. 725 (Bankr.N.D.Okla.2007) (false pretenses include omissions and conduct creating false impression)
- Blackmon v. Evans (In re Evans), 410 B.R. 317 (Bankr.M.D.Fla.2009) (co-conspirator liability for debtor’s participation in fraud)
- Holmes v. Nat’l City Bank (In re Holmes), 414 B.R. 115 (E.D.Mich.2009) (creditor deception can show fraudulent intent of debtor)