Michael John Hernandez v. General Mills Federal Credit
860 F.3d 591
8th Cir.2017Background
- In 2003–2005 Michael Hernandez obtained several loans from General Mills (now Mill City CU) secured by his grandparents' St. Paul home; Hernandez signed loan documents both for himself and purportedly as attorney-in-fact for his grandparents under Powers of Attorney (POAs). 2004 POAs were notarized by Edward Thompson; 2005 POAs were notarized by Cheryl Engh and contained a blank specimen-signature line.
- Hernandez drew nearly the full $100,000 home-equity line (the Loan) taken in March 2005; he later defaulted after losing his job and the Loan was charged off in 2014.
- In 2007–2009 family members alleged the POA signatures were forged; Joseph and Stella (the grandparents) sued in 2009 but the state-court matter was dismissed for procedural failures with language reserving defendants’ rights and later stipulated dismissals among codefendants without prejudice.
- General Mills filed an adversary complaint in Hernandez’s 2014 Chapter 7 bankruptcy seeking a determination that the Loan debt was nondischargeable under 11 U.S.C. § 523(a)(2)(A) for fraud, alleging Hernandez falsely represented he had authority under the POAs.
- The bankruptcy court found the debt nondischargeable (creditor met § 523(a)(2)(A) elements), relying heavily on testimony (including the notary Cheryl Engh denying she notarized the 2005 POAs) and on an adverse inference from Hernandez’s Fifth Amendment invocations; the district court affirmed and the Eighth Circuit affirmed on appeal.
Issues
| Issue | Plaintiff's Argument (Hernandez) | Defendant's Argument (General Mills) | Held |
|---|---|---|---|
| Preclusion / Res judicata (claim & issue preclusion) | State-court dismissal and stipulation preclude relitigation of fraud (claims already resolved) | State-court orders did not produce a final adjudication on merits as to creditor’s rights; dismissals left rights reserved or were without prejudice | Affirmed: no preclusion — no final adjudication on merits for General Mills’ claims or the specific fraud issue |
| Statute of limitations (Minn. § 541.05) | Fraud claim time-barred; discovery occurred long before 2014 | Limitations did not run until bank discovered facts constituting fraud (2009 state complaint); 2014 suit filed within 6 years | Affirmed: claim timely — discovery rule delayed accrual until 2009 complaint |
| Evidentiary rulings (hearsay & exhibit exclusion) | Admission of hearsay (family testimony, newspaper) prejudiced Hernandez; exclusion of incomplete loan exhibit BB was improper | Bankruptcy court properly exercised discretion; hearsay admission harmless and BB lacked foundation/relevance | Affirmed: rulings not reversible error — any hearsay admission was not prejudicial; BB exclusion proper |
| Dischargeability under § 523(a)(2)(A) (fraud elements) | Representation was not knowingly false (POA valid/blank entry filled later); no intent to deceive; bank’s reliance was unjustifiable (missing specimen signature was a red flag) | Hernandez knowingly misrepresented authority under POAs, intended to deceive and obtain credit, and General Mills justifiably relied on Hernandez’s signed affidavit and loan documents | Affirmed: creditor proved all § 523(a)(2)(A) elements by preponderance; debt excepted from discharge |
Key Cases Cited
- Waugh v. Eldridge (In re Waugh), 95 F.3d 706 (8th Cir.) (standard of review for bankruptcy findings)
- Grogan v. Garner, 498 U.S. 279 (Sup. Ct.) (burden of proof for nondischargeability is preponderance)
- Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373 (Sup. Ct.) (full faith and credit / preclusion governed by state law)
- Field v. Mans, 516 U.S. 59 (Sup. Ct.) (justifiable reliance standard differs from reasonable reliance)
- Baxter v. Palmigiano, 425 U.S. 308 (Sup. Ct.) (adverse inference from silence in civil proceedings)
- R & R Ready Mix v. Freier (In re Freier), 604 F.3d 583 (8th Cir.) (clearly erroneous standard for factual findings)
- Heide v. Juve (In re Juve), 761 F.3d 847 (8th Cir.) (elements of § 523(a)(2)(A))
- Reshetar Sys., Inc. v. Thompson (In re Thompson), 686 F.3d 940 (8th Cir.) (narrow construction of discharge exceptions)