653 B.R. 362
Bankr. E.D. Tex.2023Background
- SMGB loaned Isotex $3,000,000 (April 2019) and separately loaned Jason Cross $3,050,000; Cross personally guaranteed the corporate loan and received equity in Isotex.
- SMGB alleges Cross made numerous false representations in an Executive Summary and guaranty about Isotex’s letters of intent, purchase orders, contracts with growers, special seed (BOAX), insurance, and real‑estate holdings that induced the loans.
- Cross filed bankruptcy; SMGB sued to except the debts from discharge under 11 U.S.C. § 523(a)(2)(A) and (B).
- At his deposition Cross repeatedly invoked the Fifth Amendment; later he submitted an affidavit contesting facts but did not timely withdraw the privilege or submit to further discovery.
- The court struck Cross’s affidavit, drew adverse inferences where appropriate from his silence, and resolved cross‑motions on summary judgment.
Issues
| Issue | SMGB's Argument | Cross's Argument | Held |
|---|---|---|---|
| 1) Effect of Cross invoking Fifth Amendment at deposition and offering affidavit later | Strike affidavit as a late withdrawal of the privilege; adverse inference warranted | Affidavit constitutes withdrawal of the privilege and may be considered | Court struck affidavit, barred withdrawal as abusive and prejudicial, and permitted adverse inferences where appropriate |
| 2) § 523(a)(2)(A) — false representations (past/current facts) | Executive Summary and guaranty contained knowing, fraudulent falsehoods about present facts; SMGB relied and suffered loss | Cross disputed facts in affidavit (later stricken) and otherwise contested intent/reliance | Summary judgment granted: false‑representation claim proven; loan balances nondischargeable |
| 3) § 523(a)(2)(B) — materially false written statements re: financial condition | The Executive Summary and guaranty were written, adopted by Cross, materially misstated Isotex’s financial condition and were reasonably relied upon | Cross argued the Executive Summary was not a financial statement about his/Isotex’s condition | Summary judgment granted: materially false written statements proven; debt nondischargeable |
| 4) § 523(a)(2)(A) — actual fraud (intent not to repay; promises about future actions) | Adverse inference from invocation of Fifth supports finding Cross never intended to repay | Cross’s silence cannot be the sole basis for an intent finding; affidavit stricken but other evidence needed | Summary judgment denied as to actual‑fraud claim because court cannot rely solely on Cross’s invocation to resolve intent element |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard)
- Baxter v. Palmigiano, 425 U.S. 308 (1976) (adverse inference permitted in civil cases when party asserts Fifth Amendment)
- RecoverEdge L.P. v. Pentecost, 44 F.3d 1284 (5th Cir. 1995) (distinguishing false representations from promises about future events under § 523)
- Lamar, Archer & Cofrin, LLP v. Appling, 138 S. Ct. 1752 (2018) (what counts as a statement respecting financial condition)
- Davis-Lynch, Inc. v. Moreno, 667 F.3d 539 (5th Cir. 2012) (timing and prejudice considerations for withdrawing Fifth Amendment invocation)
- State Farm Life Ins. Co. v. Gutterman, 896 F.2d 116 (5th Cir. 1990) (limits on relying solely on Fifth Amendment invocation to grant summary judgment)
- Field v. Mans, 516 U.S. 59 (1995) (actual and reasonable reliance standards for § 523 claims)
- Husky Int'l Elec., Inc. v. Ritz, 578 U.S. 356 (2016) (breadth of actual fraud under § 523)