524 B.R. 835
Bankr. M.D. Fla.2015Background
- Roger Soderstrom and Scott Buono formed entities to develop and operate executive suites on the 15th floor of the Plaza building in Orlando; Plaza N 15, LLC ("Plaza 15") would buy the property and SOC-Plaza Suites would operate it.
- Plaza 15 required $2.1 million in equity (20% down plus build-out/operating funds). Soderstrom and Buono contributed $500,000; Soderstrom additionally funded an $800,000 "Interim Class B" contribution to close the bank loan.
- Plaintiffs J. Thompson Investments, LLC and Joan Thompson invested $800,000 as a Class B member after meeting Soderstrom and seeing the unfinished space; David Taylor invested $400,000 and other investors later provided the remainder.
- Thompson testified Soderstrom represented her funds would be used to complete the build-out; the court found Thompson more credible on this disputed verbal representation.
- In reality, only $652,000 of the $1.2M from Thompson and Taylor was needed for construction; Soderstrom caused distributions of roughly $557,900 (and ultimately over $900,000) to be paid to himself as repayment of his Interim Class B contribution shortly after the investments.
- Thompson sold her interest later for $20,000 and claimed an $811,000 loss; she sued seeking a nondischargeable fraud judgment under 11 U.S.C. § 523(a)(2)(A) (and alternatively under § 523(a)(19)).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Soderstrom made a false representation with intent to deceive | Thompson: Soderstrom told her funds would complete build-out but intended to use them to repay himself and exit | Soderstrom: Denies making the statement; claims any repayment was permitted by agreements and he intended to remain an investor | Court found Soderstrom made the misrepresentation and intended to deceive (credibility favored Thompson) |
| Whether Thompson justifiably relied on the representation | Thompson: Relied on the statement and Soderstrom's continued investment (skin in the game); attorney review did not negate the verbal assurance | Soderstrom: Thompson’s attorney flagged distribution language in agreements, so she was on notice and could not justifiably rely | Court held reliance was justifiable given Thompson’s experience, the verbal representation, and that attorney comments did not expose the deceit |
| Causation and damages — amount nondischargeable | Thompson: Lost $811,000 directly because she would not have invested but for the misrepresentation | Soderstrom: Disputes reliance and the effect of contractual provisions | Court awarded nondischargeable damages of $811,000 (debt not dischargeable under § 523(a)(2)(A)) |
| Applicability of § 523(a)(19) (securities fraud) | Thompson: Alternatively seeks nondischargeability under securities statute judgment converted via § 523(a)(19) | Soderstrom: Court need not reach § 523(a)(19) because § 523(a)(2)(A) remedy suffices | Court declined to reach § 523(a)(19) issues, deciding the case on § 523(a)(2)(A) |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (preponderance standard applies to § 523 nondischargeability claims)
- Field v. Mans, 516 U.S. 59 (justifiable — not reasonable — reliance standard under § 523(a)(2)(A))
- SEC v. Bilzerian (In re Bilzerian), 153 F.3d 1278 (11th Cir.) (interpretation of fraud elements in bankruptcy context)
- In re Vann, 67 F.3d 277 (11th Cir.) (discussion of justifiable reliance and creditor characteristics)