529 B.R. 696
Bankr. E.D. Wis.2015Background
- Carrie and Chris Reichartz (debtors) executed consumer vehicle-loan documents in 2007 for three cars that they never took possession of; loans were financed by Landmark (and Wiscor, later consolidated into Landmark).
- Both acted as "straw borrowers" for Steven Coffee, a dealership owner who promised to repay loans after selling the cars; Carrie and Chris gave proceeds to Coffee and made only a few payments.
- Neither debtor inspected or saw the vehicles before obtaining financing; Chris never received the Hummer and Carrie later learned vehicles were not on Coffee’s lot and had multiple liens.
- Coffee has been criminally implicated; the cars’ existence and locations are uncertain; debtors amended schedules inconsistently about ownership.
- Landmark sued under 11 U.S.C. § 523(a)(2)(A) seeking a declaration that the debts are nondischargeable; parties filed cross-motions for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debts incurred by debtors are nondischargeable under § 523(a)(2)(A) for false representation/false pretenses/actual fraud | Landmark: Debtors acted as fronts, suppressed material facts (true borrower/ purpose), and intended to deceive when obtaining loans | Debtors: They intended to purchase/resell vehicles and to repay loans; no affirmative misrepresentation; permitted consumer use included resale | Held for Landmark: summary judgment granted — circumstances (straw-borrower role, lack of possession/inspection, failure to disclose Coffee’s role) permit inference of intent to deceive; debts nondischargeable |
| Whether creditor must prove justifiable reliance on affirmative misrepresentation | Landmark: McClellan allows nondischargeability based on intent to deceive even without misrepresentation/reliance | Debtors: Emphasize no explicit misrepresentation and lack of reliance showing | Held: Reliance is not required where false pretenses/actual fraud or deceptive omissions show intent to defraud (McClellan governs) |
| Whether omissions (silence) can constitute false pretenses or fraud | Landmark: Silence about side-arrangement with Coffee created false impression and is actionable | Debtors: Omissions insufficient because loan documents permitted resale and they made some payments | Held: Omissions/failure to disclose material facts can be false pretenses; debtors’ silence was material and intended to create a false impression |
| Appropriateness of summary judgment on subjective intent to defraud | Debtors: Intent is subjective and typically ill-suited for summary judgment | Landmark: Facts here permit reasonable inference of fraudulent intent as a matter of law | Held: Although intent often precludes summary judgment, here the undisputed facts allow inference of intent and summary judgment for Landmark is appropriate |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Anderson v. Liberty Lobby, 477 U.S. 242 (materiality and genuine-issue standards for summary judgment)
- Grogan v. Garner, 498 U.S. 279 (burden of proof in nondischargeability actions)
- Field v. Mans, 516 U.S. 59 (limits on fraud exception—misrepresentation context discussed)
- McClellan v. Cantrell, 217 F.3d 890 (7th Cir.) (§ 523(a)(2)(A) covers fraud by means other than misrepresentation; focus on intent)
- Mayer v. Spanel Int’l, 51 F.3d 670 (7th Cir.) (straw-borrower scheme resulting in nondischargeability)
- Van Horne, 823 F.2d 1285 (8th Cir.) (silence/omission can constitute actionable false representation under § 523(a)(2)(A))
- Apte v. Japra, 96 F.3d 1319 (9th Cir.) (duty to disclose facts basic to transaction where nondisclosure induces creditor)
- Kimzey, 761 F.2d 421 (7th Cir.) (intent to deceive may be inferred from surrounding circumstances)