In re: Mark J. Escoto
NV-16-1211-LJuKu
| 9th Cir. BAP | Mar 21, 2017Background
- In 2008 Hillsman loaned Escoto $200,000 evidenced by a demand promissory note due on demand, in three years, or “upon settlement” of Escoto’s construction-defect litigation; the note referenced pledges of Escoto’s dental practice, building, and personal property but these interests were never perfected.
- Escoto settled the litigation twice (2008 and 2009), received net proceeds, and did not disclose either settlement to Hillsman.
- When the three-year maturity arrived in March 2011, Escoto (still delinquent on interest) requested a one-year extension; Hillsman, unaware of the prior settlements, agreed.
- Escoto filed Chapter 7 in January 2013; Hillsman then learned of the settlements and sued to except the debt from discharge under 11 U.S.C. § 523(a)(2)(A) alleging fraud by nondisclosure leading to an effective extension of credit.
- At trial the bankruptcy court found all § 523(a)(2)(A) elements established except proximate cause: Hillsman failed to show he had valuable collection remedies at the time of the settlements or that those remedies lost value during the extension period.
- On prior appeal the BAP held the relevant time for proximate-cause analysis included the settlements (not just the later extension date) and remanded for additional findings; on remand the bankruptcy court again found Hillsman failed to prove the value of remedies or their diminution and entered judgment for Escoto. The BAP affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Escoto’s nondisclosure of settlements constituted an extension of credit for § 523(a)(2)(A) purposes | Hillsman: concealing settlement effectively extended credit because it prevented immediate demand/collection | Escoto: the extension occurred only when parties signed the 2011 extension; earlier nondisclosures are not the relevant act | BAP (prior) agreed nondisclosure effected an extension; remand required analysis from settlement date |
| Whether Hillsman had valuable collection remedies at the time of the settlements | Hillsman: note pledged settlement proceeds and other collateral; he could have obtained remedies (judgment, garnishment, equitable remedies) | Escoto: note is ambiguous and did not create an enforceable lien in settlement proceeds; remedies were theoretical and unproven | Court: evidence did not prove an enforceable, valuable remedy (no attachment/clear pledge; unperfected/subordinate at best) |
| Whether the value of any available remedies diminished during the extension period | Hillsman: assets and income later shown on record (wages/business receipts) indicate loss/dissipation over time | Escoto: Hillsman offered no documentary proof tying assets to the relevant times or showing diminution during the extension period | Court: plaintiff failed to quantify value of remedies at settlement date or the amount by which they declined; proximate-cause requirement unmet |
| Whether stipulated pretrial facts (note pledged settlement proceeds) bound the court on remand | Hillsman: stipulation and testimony admitted the pledge of settlement proceeds, so court should treat as established | Escoto: stipulation/conclusory statements insufficient to resolve enforceability or value; court must adjudicate those factual/legal questions | Court: stipulation was conclusory; the court properly evaluated the note and evidence and was not bound to accept the legal-conclusion stipulation |
Key Cases Cited
- Siriani v. Nw. Nat’l Ins. Co. of Milwaukee, Wis., 967 F.2d 302 (9th Cir. 1992) (to prove causation for an extension/renewal creditor must show valuable collection remedies existed at agreement and lost value during renewal period)
- Cho Hung Bank v. Kim (In re Kim), 163 B.R. 157 (9th Cir. BAP 1994) (applies Siriani standard to extension/renewal contexts)
- May v. G.M.B., Inc., 778 P.2d 424 (Nev. 1989) (attachment/perfection principles and effect of nonperfection as between parties)