MEMORANDUM OPINION
The issues pending before the Court are whether the proposed Chapter 11 Plan of Nathan Paul Reuter (“Debtor”) should be confirmed, whether Debtor should receive a discharge and whether certain debts are nondischargeable. Debtor filed a voluntary petition for relief under Chapter 11 on July 27, 2007. Debtor also filed a Chapter 11 Plan wherein he proposed that Plaintiffs claims be deemed allowed and liquidated in certain amounts and that such claims would be satisfied through Plaintiffs exercise of their rights in assets consisting of 57.5% of the issued and outstanding common stock of Monarch Title Company; equity/equitable interest in Monarch Lake of less than 50% of total ownership; and equity/equitable interest in Monarch North of less than 50% of total ownership. He also proposed that not later than 90 days from the effective date, the assets would be liquidated and the net proceeds paid, pro rata to Plaintiffs in full payment and satisfaction of the allowed claims. Further, he proposed that on the 30th day of each month for a period of sixty months, he would pay, pro rata to Plaintiffs a sum which upon completion of such 60th monthly payment would be equal to the difference of all other property to be distributed under the Plan to the holders of claims and Debtor’s projected disposable income.
Tana S. Cutcliff, James A. Fields, James D. Fields, Joshua P. Haeflinger, LaDonna S. Henderson (as trustee for LaDonna S. Henderson Living Trust), Patricia A. Reitz (as Trustee for Frances L. Reitz Trust), Terry J. Schippers, James D. Teegarden II, and Michael S. Trom (collectively the “Plaintiffs” or the “Investors”) filed an Objection to Debtor’s Second Amended Chapter 11 Plan pursuant to 11 U.S.C. § 1129.
Plaintiffs also filed an Adversary pursuant to 11 U.S.C. §§ 523 and 727 seeking a denial of Debtor’s discharge and exception of Plaintiffs’ debts from discharge. A trial was held on this matter in March of 2009 and the Court took the issues under advisement. This Court has jurisdiction over these proceedings pursuant to 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1). This is a core proceeding, pursuant to 28 U.S.C. § 157(b)(2)(I), (J) and (L) which this Court
I. FACTUAL BACKGROUND
Debtor graduated from the University of Missouri in 1980 with a degree in agricultural economics. He started his career at a company by the name of Union Electric Ameren (“AmerenUE”) where he was in charge of inventory control for a nuclear power plant. He was with AmerenUE for approximately fourteen years and then he changed careers. After leaving Amer-enUE, Debtor got involved in the world of real estate development and mortgage finance. He started a mortgage finance company, Liberty Financial in Springfield, Missouri. Sometime in 2001, Debtor’s ambitions grew and he moved Liberty Financial to Columbia, Missouri where he expanded his operation from providing mortgages to include insurance, investments and other finance opportunities. Debtor was introduced to Daryl Miles Brown (“Brown”) while he was operating Liberty Financial. Brown was involved in a similar business at Primerica and referred some clients to Debtor.
In August of 2003, Debtor, Brown and Chuck Bowman (“Bowman”), who was an associate of Debtor’s at Liberty Financial, decided to go into business together and formed Vertical Mortgage LLC (“Vertical”) by filing Articles of Organization with the Missouri Secretary of State. At that same time, Debtor formed a series of Vertical Group subsidiaries: Vertical Securities, LLC, Vertical Protection, LLC and Vertical Mortgage Banc, LLC. He later formed additional subsidiaries: Vertical Financial Services, LLC, VACA, LLC and Vertical Market, LLC. Vertical’s Website (the “Website”) represented that it was a wholly owned company with subsidiaries. The Website stated, among other things, that Vertical Group was “a worldwide lender to corporations and corporate owners of significant stock portfolios or vested stock options seeking to refinance existing debt to better rate and terms, or expand their businesses through internal growth or acquisition.”
Debtor was impressed by Brown’s entourage of followers from Primerica, which was described as a consumer insurance/investment banking operation, his alleged experience and wild stories of success in the securities investment business, his relationship with an alleged Citigroup investment banker named A1 Christy, and his purported rights to trade the assets or
Ricky D. Williams (“Williams”) came to be employed by Vertical through his prior relationship with Brown. They worked together at Primerica for a short period of time. Prior to being hired by Debtor as Vertical’s “National Sales Director,” Williams was doing construction and selling power tools. He has no college education. He is not licensed to sell securities. He has no background in handling investments. He never submitted a resume’ or references to Debtor or anyone else at Vertical. Debtor hired him based solely on his half hour interview and Brown’s recommendation.
Vertical’s offices were located in what was described by one of the Plaintiffs as an impressive, million dollar building, in Columbia, Missouri, which Debtor and his spouse purchased a few years prior to Debtor forming Vertical. 3 Debtor was the founder and Chief Executive Officer, Brown was the Chairman of the Board and Bowman was the Chief Operations Officer. There were many aspects to Verticals intended business including mortgages, wealth management, investment services, low-interest refinance and insurance. According to Bowman, although Debtor’s practical day-to-day work at Vertical was working the investment side of the shop with Williams, 4 he was at the top of the hierarchy of all branches, he was the man in charge, and there was no one at Vertical who could tell Debtor what to do. 5
There were a number of failed investments that are relevant to this case, but with regard to Plaintiffs’ Adversary, there were essentially two rounds of investments that are specifically at issue in this case. The first round occurred in late 2004 and involved two investors; Debtor and Mike Trom. The second round of investments occurred between late January and early March of 2005, and involved the remaining eight Plaintiffs: Cutcliff, James A. Fields (“J. Fields”), James D. Fields (“T. Fields”), Haeflinger, Henderson, Reitz, Schippers, and Teegarden. Although the investments occurred at different times, the basic mechanics were the same. In each round, the Plaintiffs were induced to transfer money into an escrow account. The were told that they were participating in an exclusive, high-yield, investment program, where their principal investment would be 100% safe, and they would start receiving returns in as early as fourteen to thirty days after they invested. The specifics related to how their investments were suppose to remain in the escrow account and create such fantastic returns are obtuse, however, the evidence is essentially that Plaintiffs thought their principal investment was going to be leveraged against, or be used to acquire, standby letters of credit, which would somehow generate the incredible returns. The fact is, however, that because Brown, and his cohorts Bud Wofford and Sylvestor Mitchell were criminals, Plaintiffs never received their principal investment back or a single penny of the promised returns.
6
After all
With the exception of Trom, all of the other Plaintiffs wired their investment money to an escrow agent named Dennis Cole in Florida. Brown was responsible for setting up this account and did so under the name of Cerberus, Inc., a company which he incorporated, but did not formally maintain. The evidence is that this escrow account was unusual in that it did not require the acquiescence of three parties to divest funds. In other words, in this situation, Brown set up an account in the name of an escrow agent, but the account really was not an escrow account because the party depositing the money had absolutely no control over it after the deposit. Because Brown was paying Mr. Cole incredible sums of money, $90,000 for his work as an escrow agent between January and July of 2005, even though Mr. Cole was aware that he was involved in an illegitimate operation, he did not cease taking directions from Brown. Mr. Cole fielded questions from some of the Investors, but did not alert authorities or stop his relationship with Brown. Mr. Cole was convicted for federal crimes for his involvement in the investment scam at issue in this matter. As part of his plea agreement, he agreed to cooperate in all court proceedings related to this matter and answer all questions truthfully.
The first round of investments occurred in late November 2004, when Debtor’s good friend and neighbor, Mike Trom, was approached by Debtor regarding the possibility of Trom purchasing a business in Springfield, Mo. After doing significant due diligence, Trom was ready to go forward with the deal and told Debtor that he was able to make the required down payment of $350,000. At the last minute, Debtor backed out of the deal. Debtor and Williams proved very effective in attracting investors in this “bait and switch” scheme where they would use Vertical’s loan capability to lure potential investors in and then quickly switch the focus to the exclusive, high-yield investment opportunity that they were promoting.
In Trom’s case, after Debtor pulled the plug on the financing, he proposed an alternative way for Trom to purchase the business, without needing a traditional loan. Debtor described the exclusive investment opportunity that he could offer because of his business relationship with Brown. He described Brown’s connections with extraordinarily powerful and wealthy investment people and his control over the assets of the Trust. Debtor explained that Trom’s principal investment would be placed in an escrow account and that his initial investment would be 100% safe. He described the mechanics of the investment program, the standby letters of credit and how they would be used to generate incredible returns. He told Trom that he could expect, within fourteen days of investing, to start receiving returns of up to $500,000 a month, for ten months. The total return on the entire investment was going to be $2 million a month for ten months, but Debtor cannot recall if he informed Trom of this fact. Debtor promised him that he would not lose a dime. However, if Trom wanted in on this deal, Debtor told him that needed to make a decision by the end of that
Debtor decided to invest the other $175,000 because, he testified, he wanted to try the program out on himself before recommending it to others. 7 The list of characters with whom Debtor’s and Trom’s initial investment was placed reads like the credits from a Soprano’s episode. Dominic Gardino was allegedly a trustee for the Trust. Mr. Gardino introduced Dr. Bichai, supposedly a trader from Oklahoma who had access to trusts and capital, to Debtor by telephone. Chris Venti was a New Yorker and was Dr. Bichai’s “right-hand-guy.” Venti and Bichai were introduced to Debtor as the guys who were doing the standby letter of credit type of investments, with zero risk to the investors’ principal and the opportunity for incredible returns on the investment. Debtor’s due diligence with regard to Dr. Bichai involved asking Brown to check him out and calling an attorney who was listed on one of Dr. Biehai’s own documents, who also vouched for his business practice. There is no written contract associated with Debtor’s and Trom’s investment because Debtor was told by Bichai, Venti and Gardino that this was a special opportunity, only being offered to he and Trom due to their relationship with Brown and Brown’s charge of the Trust. Dr. Bichai told Debtor that he did not want anybody knowing who he was, what he was doing or where he was. 8
On November 3, 2004, Trom and Debtor each wired $175,000 to an escrow account under the name of Jennifer B. Schimmel in Texas. On the fourteenth day after making the investment, Trom contacted Debt- or about whether their returns had come in yet and was informed that there was a delay due to the holidays. The next excuse was that the United States did not want to allow euros into the system, because they [the euros] were flooding the market and devaluing the U.S. dollar. The next excuse was that Dr. Bichai was in the Caymans and needed to travel to the U.S. to sign some paperwork to release the funds. The next excuse was that Dr. Bichai had been in a car accident and was under the influence of pain medication and could not sign the documents in that condition. All of this information was being fed to Trom through Debtor and coming from any one of the parties in charge of the investment: Bichai, Venti, or Gardino. By February 2005, Debtor knew that the investment had been a scam and that his and Trom’s money had been stolen by Dr. Bichai.
In March of 2005, Trom was approached by Debtor with a second opportunity to get involved in another investment at Vertical, which required no additional injection of cash, but it was an a way for Trom to recoup some of his money. Trom understood that there were more investments going on and that if he was involved, he would receive a portion of another investor’s returns, above and beyond what had been promised to that investor, to make him whole. 9
J. Fields, and his associate, Reitz, were doing house rehabs and shopping for loans when they first became acquainted with Debtor and Vertical. They learned that Vertical would do the type of loans they needed when no other bank would, however, it was during their first telephone conference with Williams and Brown that the discussion switched from obtaining a loan to getting involved in an investment opportunity. In mid-February 2005 J. Fields, Reitz and Field’s son, T. Fields went to Vertical’s office to learn more about the investment opportunity. They met in the Vertical conference room where the Plaintiffs described Debtor as being in control of the meeting. Debtor sat at the head of the table, directed the meeting, explained the mechanics of the investment opportunity, and answered questions. At this meeting, Debtor made specific representations to Reitz regarding the timing of the return of his principal investment, as this affected Reitz’s ability to exercise certain stock options Reitz indicated that he had. Debtor directed Williams to show Plaintiffs a proprietary document which purported to be an example of how much money another investor had earned in a similar type of investment. They were told that they would start seeing incredible returns within thirty days of their initial investment. Based on what they saw at Vertical’s office and what they learned from Debtor, J. Fields wired $50,000, T. Fields wired $100,000, and A1 Reitz wired $50,000 to an escrow agent in Florida, as they were instructed to do pursuant to written documentation faxed to them from the Vertical office by Williams.
Plaintiff James Teegarden became involved with Vertical and came to know Debtor because he was friends with Williams. Teegarden came into some inheritance and asked Williams if he could get involved in the investments that Williams was doing at Vertical. Teegar-den invested $50,000 by wiring the funds to Dennis Cole in Florida.
Plaintiff Tana Cutcliff became involved in the investment program because a
Plaintiff Joshua Haeflinger obtained a home mortgage through a friend of his at Vertical. His friend suggested that he contact Williams on the investment side of Vertical to discuss investment opportunities, which Haeflinger did. Haeflinger did not meet or talk to Debtor prior to making his investment. After talking to Williams, he invested $100,000 by borrowing against the equity in his real estate and by taking $30,000 out on credit cards at a 15% interest rate.
Plaintiff Terry “Shugg” Schippers became acquainted with Debtor and Vertical and the investment opportunity through J. Fields as he too was in the business of rehabilitating houses. On March 4, 2005, Schippers invested $50,000. Schippers did not meet or talk to Debtor prior to investing.
On March 31, 2005, Federal Bureau of Investigation (“FBI”) special agents executed federal search warrants on Vertical and Debtor’s personal residence.
On May 6, 2005, the Missouri Attorney General filed an application for a temporary restraining order and a preliminary injunction, in the Circuit Court of Boone County, Mo. seeking to enjoin Vertical, Brown, Williams and Debtor from advertising, soliciting, offering for sale or selling standby letters of credit or any other investment instruments, financial instrument, or investment opportunity. 11
On June 15, 2006, Plaintiffs filed a Civil Complaint in the Western District on Missouri against Debtor which was stayed by Debtor’s July 27, 2007 Bankruptcy filing. In a final attempt to recoup their lost investment monies, Plaintiffs filed this Adversary proceeding.
II. DISCHARGEABILITY DISCUSSION AND ANALYSIS
A. Debtor’s Direct Liability for False Pretenses and False Representation
Pursuant to § 523(a)(2)(A)
Each of the Plaintiffs in this case has pleaded an exception to discharge claiming that the respective debts owed should be nondischargeable as they were incurred as a result of Debtor’s false pretenses, false representations and/or through actual fraud pursuant to § 523(a)(2)(A).
Section 523(a)(2)(A) of the Bankruptcy Code states that:
(a) A discharge under section 727, 1141, 1128(a). 1128(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by,-
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.
11 U.S.C. § 523(a)(2)(A). Congress did not define the terms used in § 523(a)(2)(A). However, the United States Supreme Court recently construed the terms in this section to encompass common law misrepresentation or actual fraud.
AT&T Universal Card Services v. Ellingsworth (In re Ellingsworth),
To prevail under § 523(a)(2)(A) the creditor must prove the following elements:
1) that the debtor made a representation;
2) that at the time the debtor knew the representation was false;
3) that the debtor made the representation deliberately and intentionally with the intention and purpose of deceiving the creditor;
4) that the creditor justifiably relied on such representation; and
5) that the creditor sustained the alleged loss and damage as the proximate result of the
representation having been made.
In re Maurer,
“A ‘false pretense’ involves implied misrepresentation or conduct intended to create and foster a false impression.”
Moen,
A debtor’s silence regarding a material fact may also constitute a false misrepresentation under § 523(a)(2)(A).
Moen,
Preponderance of the evidence is the standard by which a case must be proven to prevail on a claim under § 523(a)(2)(A).
In re Nelson,
As a preliminary matter, the Court must decide whether the Debtor must personally receive the “money, property, or services,” that was “obtained by” false pretenses or false representation, or whether a different standard should apply. Three views on this issue have emerged in the courts.
Jacobs v. Mones,
The four circuit courts that have considered this issue squarely have adopted the second view, the “receipt of benefits” approach.
See e.g., In re Bilzerian,
This Court agrees with courts that have found that the “receipt of benefits” approach is the better reasoned view. “[T]he better view appears to be that the debtor need not actually procure money or property for himself. If the debtor benefits in some way from the property obtained through his deception, the debt is nondis-chargeable.”
Mones,
The Eighth Circuit in
Lawyers Title Ins. Corp. v. Dallam,
The record in this case establishes that Debtor was involved in the investments because he expected to make a profit, both for Vertical and for himself.
12
As will be established later in this opinion, the evidence is that Debtor and Brown had formed a partnership and that the invest
In another case, the court considered a situation in which, due to fraudulent representations regarding investments, the person expecting to obtain money through the investments never realized any profits.
McCoun v. Rea (In re Rea),
The Court finds that under either Eighth Circuit precedent or other well reasoned opinions from other jurisdictions such as Rea, that it is on firm ground in holding that Debtor’s partnership benefit-ted by his fraud, that Debtor believed he had, and had, the opportunity to benefit and that each of these instances satisfies the “obtained by” requirement of § 523(a)(2)(A).
1. Debtor’s False Representations and False Pretenses
Debtor argues that the law in Missouri is that to constitute fraud, the asserted false representation must be a representation of a past or existing fact rather than a statement regarding what an independent third party may or may not do, or a promise or prediction for a future action. Debtor argues that the Plaintiffs’ basis for their § 523(a)(2)(A) claim must fail because Debtor did nothing more than make promises or predictions regarding how independent third parties, or escrow agents, would be handling their money if they chose to invest, therefore, his statements cannot support a fraud claim as a matter of law.
See Sindecuse v. Katsaros,
The facts in
Katsaros
are completely distinguishable from the facts in this case. Plaintiffs are not asserting their § 523(a)(2)(A) claims based on the tort of actual fraud, or on statements about the
Debtor promised Trom, Henderson, J. Fields, T. Fields and Reitz that they would not lose their principal investment and that it would remain 100% safe in an escrow account. These Plaintiffs testified that they would not have invested then-money if they thought that there was a chance that they would lose their initial investment. Trom testified that Debtor told him, “I guarantee you won’t lose a dime in this deal.”
14
Bowman testified that he overheard a conversation between Debtor and Trom at Vertical’s offices, where Debtor told Trom that his principal money was protected and that it would be available to him when he needed it.
15
Henderson testified that Debtor told her that her initial investment would be left in an escrow account, controlled by Debtor.
16
J. Fields testified that Debtor told him there was a zero risk that he would lose his principal investment because “... it was going to be put in an escrow account that [Debtor] was in charge of, and that no money left that escrow account unless it had his approval. [Debtor] said I don’t know what you can make, but I know you will not lose any.”
17
Reitz testified that he specifically told Debtor he needed his principal investment back by a particular date so that he could exercise certain stock options that he had in a separate transaction. Reitz said Debtor guaranteed that his initial investment would be available by the date he needed it.
18
T. Fields testified that Debtor told him that he was in control of the escrow account that investors’ money went into, which is the reason he could
The fact, however, is that at the time Debtor was guaranteeing Plaintiffs that their initial investment was going to be 100% safe because it was going into an escrow account, he did not know anything about the escrow account. He testified that he did not know or trust the escrow agent, Dennis Cole. 20
Q. Did you know where the escrow account was going to be?
A. That’s a toughie. Could I say exactly at that point in time where it was going to be, no. I think the term was it’s going to be in an escrow account. I don’t know that I could say right now that I knew it was going to be Dennis Cole in Clearwater.
Debtor knew absolutely nothing about the escrow account that he was representing to Plaintiffs as being 100% safe and legitimate.
Debtor told Trom, Henderson, J. Fields, T. Fields and Reitz that Vertical had a successful history of providing high-yield returns to clients through the same investment program he was offering. Debtor told Henderson that Vertical had done another investment and showed her a redacted contract to prove that the investment was legitimate. 21 The evidence is that Debtor instructed Williams to show Plaintiffs a “proprietary document” which purported to be an example of an investment that they had done which had produced millions of dollars in returns. 22 Trom testified that Debtor told him that he had done an investment like the one they were getting ready to do and that it had been successful. 23
The record is clear, however, that although identical investments had been attempted before Plaintiffs invested, none of the investments had been successful. In fact, the evidence is that, at the time Debt- or was soliciting potential investors for the second round of investments, Debtor knew that the Tamashii Computer was suing Vertical for alleged investment fraud and by February of 2005, he also knew that he and Trom had each been scammed out of their $175,000 investments. Yet he told Plaintiffs none of this information.
In addition to fraudulently misrepresenting Vertical’s past successes in the investment business, failing to advise Plaintiffs of Trom’s and Tamashii’s failed investments, he also failed to inform Plaintiffs that he had no experience with high-yield investments:
Q. Did you disclose to any of the clients ... that you and [Brown] and the others had no prior experience [in generating high returns for others through the investment program]?
A. I didn’t say that I had experience doing that.
Q. But you never made clear to them that you lacked experience?
A. I don’t know that it was ever a question. 24
Debtor either directly represented or allowed the Plaintiffs to believe the false pretense that Vertical, and its employees
2. Debtor’s Knowledge That The Representations Were False
“In assessing a debtor’s knowledge of the falsity of the representation ..., the Court must consider the knowledge and experience of the debtor.”
Moen,
“A misrepresentation is fraudulent if the maker (a) knows or believes that the matter is not as he represents it to be, (b) does not have the confidence in the accuracy of the representation that he states or implies, or (c) knows that he does not have the basis for his representation that he states or implies.”
Rest. (2d) Torts § 526 (1977). The record is replete with evidence showing that Debtor knew that he did not have a basis for making the representations that he was making to Plaintiffs regarding the investment opportunity.
Debtor is a college educated, financially successful, sophisticated, business man who had either full or part ownership of two companies in the mortgage finance industry before incorporating Vertical and all of its subsidiaries. He had a sharp business acumen, and he accumulated a level of wealth and esteem in the community, that some of the Plaintiffs testified contributed to their willingness to participate in the investment program that he was promoting. Debtor argues that he was duped along with the rest of the Plaintiffs by criminals and asserts that the fact that he invested his own money bolsters his argument. The Court finds that the loss of his own funds may have made him pull the blinders down even further in an attempt to recoup his loss. The fact that he was reckless with his own money did not give him a right to be equally reckless in his dealings with Trom’s. Although Debtor attempts to disassociate himself from Brown and his investment program, thereby bolstering his rationale for doing absolutely no due diligence into his business associates or having no oversight over the investment program itself, the Court finds his testimony completely disingenuous. Debtor’s testimony is riddled with inconsistencies and implausible explanations.
Debtor trusted Brown to be the Chairman of his newly formed company and to be in charge of millions of dollars of Plaintiffs’ money, yet he knew nothing about Brown’s personal or professional background. Debtor admitted that he did not perceive Brown as a highly skilled profes
The lion’s share of the evidence establishes that Brown was anything but professional and had Debtor done even minimal due diligence he would have uncovered clues which, at the very least, would have put him on notice that Brown was not what he appeared to be, thus, not worthy of the unfettered control over the investments and esteem that he garnered from Debtor. However, the problem in this case is that Debtor turned a blind eye to all things which suggested illegitimacy.
The first red flag regarding Brown’s fraudulent business activities occurred in early 2004 when he and Debtor decided to use the Trust to facilitate development of Debtor’s commercial loan program. Debt- or was going to finance a golf resort that was supposedly being developed by one of Brown’s associates, Ralph Sweitzer. 28 In the course of this endeavor, and at the direction of Brown, Debtor made numerous cash payments to Sweitzer in 2004, which totaled $111,000. 29 Debtor traveled with Brown and Sweitzer to Germany to try to “get the deal done,” but it was a total failure. Brown was in charge of the details and Debtor testified that upon arriving in Germany, he discovered that the contact who was suppose to be there never showed, that they (Brown and Sweitzer) did not have their paperwork in order, and that the necessary people were not there to close the deal. 30 Debtor admits that the entire deal was a fraud and he has since sued Brown alleging fraudulent misrepresentations and common law fraud. 31
Also in early 2004, as part of the process of reapplying for mortgage loans with the banks, Vertical’s COO, Bowman, ran a credit report on Vertical’s principals, including Brown, and learned that his credit score was “horrific,” probably the lowest he had ever seen. 32 Brown’s credit score was so low that Debtor had to help Brown get a special lease-to-own mortgage through a contact of Debtors, and even then Brown was missing rent payments. Debtor testified that Brown’s poor financial condition, despite Brown’s reputation for being a hot-shot in the investment world, caused him no concern whatsoever. 33
Although there was less opportunity to be reckless simply due to the fact that
Q: [Referring to D. Ex. 52] Did you review this document at the time?
A: No, I don’t review legal documents very often. 37
Q: You didn’t find it odd that a fellow who’s investing $175,000 is not allowed to see a copy of a contract for the investment?
A: Do you find it odd that Mike nor I had it or he didn’t even know what he had for sure when we did do it or what his return was going to be for sure when we did it? 38
Based on this testimony, Debtor had no basis as the CEO in telling Trom that he should invest his money in the investment. He had not reviewed the contract and did not know anything about the transaction that he was inducing Trom to get involved in. His actions as the CEO of the company were reckless.
Another red flag that Debtor ignored arose in late 2004 when the Missouri Commissioner of Securities conducted an investigation of Vertical Securities, LLC, Vertical and Debtor. The allegation was that someone at Vertical, which as it turned out was Brown, was holding Vertical Securities, LLC out to the public on Vertical’s Website and on Vertical business cards as being licensed by the NASD and SIPC, neither of which were true. This issue was resolved on December 20, 2004, when Debtor, as “President/CEO” of Vertical Securities, LLC, signed and consented to a Consent Order issued by the Missouri Commissioner of Securities. In the Consent Order, Debtor stipulated that Vertical Securities, LLC held itself out to be a Broker/Dealer and member of NASD and SIPC, that Brown had given a potential customer a business card identifying Vertical Securities, LLC as a “Broker/Dealer Member NASD/SIPC,” that Vertical, Vertical Securities, LLC and himself were not registered to transact business as a Broker/Dealer in Missouri and that they had made no filings with the NASD or SIPC. He stipulated that they had filed false information with the Missouri Commissioner of Securities and he agreed to pay a $5,000 fine for Vertical Securities, LLC’s infractions. When asked about this at trial, Debtor admitted that he did not read the Consent Order stating, “I didn’t read it, not even the header,”
39
and said that he didn’t think he ever talked to Vertical’s attorney about what exactly had occurred regarding the infraction and why he was being fined. Instead of viewing Brown’s false representations regarding Vertical
Q. But at the conclusion of that process [the execution of the Consent Order], it would be fair to say that you already knew at that point you had a problem with Daryl Brown, correct?
A. No. I think somebody made a mistake, put some stuff on a card they shouldn’t have, and we corrected it. 40
Another opportunity that Debtor had to take off the blinders, but chose not to involved the Dennis Cole Escrow Account. As stated previously in this opinion, Debt- or admitted that he did not know or trust Dennis Cole and that he did not know anything about the escrow agreement that Brown had entered into with Mr. Cole. Had Debtor wanted to know about the escrow agent that he was touting to potential investors as being legitimate and as having the capability to safeguard their investments, he could have reviewed the written document which memorialized the agreement, 41 but he admitted that he did not. This agreement existed in October of 2004, prior to Plaintiffs investing in the program. Had Debtor reviewed that document, he would have known the account was not a typical escrow account, if it was even an escrow account at all, as there were no protections in place for the depositors and Brown had complete, unfettered control and access over all funds deposited into the account. But Debtor testified that, although he knew there was an escrow agreement, he did not review it because: 1) Brown told him it was a legitimate account, therefore it was; and 2) an escrow account for the investment program would have been a “securities issue” something for Brown, or the Trust or Brown’s other company Cerberus, or A1 Christy to deal with if something went wrong. 42 Once again, Debtor’s attempt at distancing himself from the investment program exemplifies the recklessness underlying his various assurances to Plaintiffs.
Debtor admits that he felt “no obligation whatsoever” to ensure that the Plaintiffs received reliable information, explaining that at Vertical “each guy had their spe-ciality. [Securities] wasn’t mine.” 43 Referring to the information that he communicated to the Plaintiffs, Debtor testified, “It’s up to them to decide what was what.” 44
Prior to the second round of investments, Debtor was aware of at least two investment deals involving Brown that resulted in zero returns and a 100% loss of principal investment. The first involved a Vertical employee, Marty Forgy, who advised Debtor that her parents had invested money in a business venture that Brown pitched to them, but that nothing ever came of the deal and her parents lost $50,000. There are insufficient facts to determine whether Brown was liable for the Forgy debacle, but the fact that Brown was involved in an investment deal which resulted in a total loss, coupled with all the other red flags, should have cued Debtor into the fact that Brown did not warrant unquestioned control over transactions that were going through Debtor’s company.
3. Debtor Made the Representations Deliberately and Intentionally With the Intention and Purpose of Deceiving the Plaintiffs
“The intent element of § 523(a)(2)(A) does not require a finding of malevolence or personal ill-will; all it requires is a showing of an intent to induce the creditor to rely and act on the misrepresentations in question.”
Moodie-Yannotti v. Swan (In re Swan),
Debtor, the CEO and founder of Vertical, admitted that when he communicated with the Plaintiffs, he told them they were investing with Vertical. 46 He guaranteed them that they would not lose their initial investment because it would be returned to them if nothing happened. 47 He was described by his COO, Bowman, as the person who could “help close the deal.” 48 He met regularly with his “National Sales Director,” Rick Williams, to discuss “potential investors.” 49 The evidence is that after vetting possible investors, Debtor met with them, fielded questions and essentially said whatever he needed to say regarding the nature and legitimacy of the investment opportunity to close the deal, regardless of whether he had any factual basis to support his statements. The Court finds that Trom, Henderson, J. Fields, T. Fields and Reitz established that Debtor intended to induce them to invest their money in the investment opportunity that he was promoting.
Plaintiffs argue that the Court may still find that these claims nondischargeable on the theory that these Plaintiffs were induced to not seek the return of their initial investment after the initial deadline had passed, but rather to “reinvest” it and hopefully make the fantastic returns that they had originally discussed. The argument is that Debtor wanted Plaintiffs to stick with their investment and had he not induced them to remain invested by advising them to not cooperate with the FBI and by withholding all the other pertinent information about Brown’s failed investments, fraudulent marketing of SEC lis-censure and total lack of knowledge about what was going on with their money, they likely would have withdrawn their initial investment. Plaintiffs further argue that there was $600,000 in the account at one point and the fact that some of the other investors received some money back supports their conclusion that had they requested their money back, that they too would have received it.
The Court finds this argument too factually speculative and lacking any reasoned legal authority. Plaintiffs provided no authority for their theory that the elements of common law fraud or the statutory requirements for an exception to discharge are satisfied by their forbearing a legal right to receive a refund of their initial investment. The Court’s own research revealed a line of cases which address the issue of whether forbearance of a contractual right constitutes an “extension of credit” within the meaning of § 523(a)(2) such that the “obtained by” requirement is satisfied, however, they appear to be distinguishable from the situation at hand.
See e.g., Hagar v. Beimel (In re Beimel),
4. Plaintiffs Justifiably Relied on Debtor’s Representations
The Supreme Court has held that the standard to be applied to exceptions to discharge for actual fraud under § 523(a)(2)(A) is “justifiable reliance,” which is a lower standard than “reasonable reliance,” and entails no duty to investigate.
Field,
... if one induces another to buy a horse by representing it to be sound, the purchaser cannot recover even though the horse has but one eye, if the horse is shown to the purchaser before he buys it and the slightest inspection would have disclosed the defect. On the other hand ... a defect that any experienced horseman would at once recognize at first glance may not be patent to a person who has had no experience with horses.
Field,
at 71,
Although Plaintiffs’ reliance may not have been reasonable, based on the evidence in this case, it was justifiable under the minimal standard set forth by the Supreme Court. “The rationale for placing this relatively low burden on the victim of the misrepresentation is rooted in the common law rule that the victim’s contributory negligence is not a defense to an intentional tort.”
In re Treadwell,
This case presents an unusual set of circumstances in that there are two layers of management, one which was operating at a criminal level and another which was operating at a reckless level. The innocent Investors, none of whom had much, if any, investment experience, did not have a chance. First, they were lured into Vertical’s web of services with promises of too-good-to-be-true financing or loans no other bank would give them. Next, after they were on the hook and had divulged their financial status, they were told that they could be a part of an exclusive investment opportunity, not available to just anyone, where they could earn great wealth and be exposed to zero risk. Some learned these fantastic facts from the CEO and founder of the successful financial services company that was offering such an amazing opportunity. A company that held itself out to the world on the internet as being “a worldwide lender to corporations and corporate owners of significant stock portfolios or vested stock options to refinance existing debt to better rate and terms, or expand their businesses through internal growth or acquisition.” This is just one of many impressive statements that Vertical’s Website reported it was capable of doing. Several of the Plaintiffs testified that they relied on Vertical’s Website as part of their decision to invest.
The CEO and founder of Vertical himself was adept at creating a false impression of legitimacy, trustworthiness, and credibility. He was tremendously wealthy, owned real estate in the community, owned the beautiful building in which Vertical’s offices were located and was known as a man of his word. Considering the amount of experience that the Plaintiffs had in securities and investments, which was little if any, and the impressive nature of the circumstances surrounding the sale of the investment contracts by Debtor, the Court finds that Plaintiffs’ reliance on Debtor’s promises regarding the safety and legitimacy of the escrow account and the zero risk of their initial investment was justifiable. Plaintiffs are not asking the Court to find that it was justifiable for them to rely on promises of great wealth because Debtor never promised that. He did promise that he had some level of control, if not total control, over the escrow account and that their initial investment would not be at risk. Additionally, Plaintiffs were told that Vertical had done
While the standard articulated by the Supreme Court may be low, the Eighth Circuit has noted that there are instances where, if there are obvious warning signs, then justifiable reliance may not be found. “[I]f there are any warning signs (i.e., obvious or known falsities,
see
Rest.2d § 541) either in the documents, in the nature of the transaction, or in the debtor’s conduct or statements, the creditor has not justifiably relied on this representation.”
Guske v. Guske (In re Guske),
In this case there are discrepancies in the documents. The contracts have “Wes-Marc Commercial Services” as a header, reference entities other than Vertical, and do not mention Debtor, Williams or Brown. It could be argued that these discrepancies amount to “obvious warning signs” which should have cued the Plaintiffs in on the fact that something was not right with the investment that they were getting involved in. Here, however, all of the documents were generated through Vertical’s office. Trom, Henderson, J. Fields, T. Fields and Reitz each talked directly to Debtor prior to investing their money. They sat in the conference room of the impressive building owned by Debt- or and were told by Debtor, the founder and CEO, of what appeared to them be a legitimate, financial services company, that they had a rare opportunity to participate in a high-yield investment deal because of Debtor’s business associate’s control over a multi-million dollar Trust. They were shown documents of other investors who had supposedly made millions of dollars by doing exactly what they were about to do. Once they decided to invest, all correspondence regarding the investment came directly from Vertical. The wiring instructions came from a Vertical employee, Williams. The contracts, although clearly depicting names of entities and individuals other than Vertical, Debtor or Brown, were faxed to Plaintiffs from Vertical and contained Vertical’s information. The Court finds that although the Plaintiffs’ may have overlooked some things in the contracts that an experienced investor, or a lawyer, or someone who deals with contracts on a daily basis, may have identified as a problem, because the contracts came directly from Williams, from Vertical, and because all questions regarding the contracts were fielded through the Vertical office, and all faxes regarding the contracts went through the Vertical office, it is conceivable to the Court that the Plaintiffs would believe the unfamiliar names in the contracts were simply companies working with Vertical to make the investments happen. The Court finds that based on the facts in this case, that the inconsistencies in the documents do not amount to “obvious warning signs” of false representations.
5. Debtor’s False Representations and False Pretense are the Proximate Cause of Plaintiffs’ Damages
Plaintiffs Trom, Henderson, T. Fields, J. Fields and Reitz have been damaged in the amounts that they each invested, plus any other damages that are established under state securities law violations as set forth in detail in the damages section of this opinion. Absent Debtor’s fraudulent misrepresentations and false pretenses, the
B. Debtor’s Vicarious Liability for False Pretenses and False Representation Pursuant to § 523(a)(2)
The United States Supreme Court has recognized that a debt may be nondischargeable when the debtor personally commits fraud or when actual fraud is imputed to the debtor under agency principles.
Strang v. Bradner,
Brown, a co-founder and owner or part owner of Vertical, was indicted, tried and convicted of crimes related to the fraudulent investment opportunity that Debtor, Brown and Williams solicited Plaintiffs involvement in. Debtor admits that he believes that Brown’s fraud is the cause of Plaintiffs’ damages. 51 No party disputes that fact that Brown committed fraud. The next question for the Court then is whether the evidence supports a finding that Brown and Debtor were partners such that Brown’s fraud should be imputed to Debtor under U.S. Supreme Court and Eighth Circuit precedent.
As Debtor points out in his brief, a partnership is statutorily defined as “as association of two or more persons to carry on as co-owners [of] a business for profit.”
Hillme v. Chastain,
A partnership agreement may be written, expressed orally, or implied from the acts and conduct of the parties.
Morrison v. Labor & Indus. Relations Comm’n.,
There is no evidence of a written or oral partnership agreement in this case. However, there is ample evidence to support the Court’s finding that Debtor and Brown
There appears to be some question regarding whether recent 8th Circuit opinions have modified
Strang,
in such a way as to place additional requirements on an otherwise “innocent” agent or partner when dischargeability is being sought under the theory of vicarious liability. Under
Strang,
the Supreme Court held that a debtor is liable in bankruptcy for the false and fraudulent representations of his partner made in the conduct of partnership business.
Strang,
at 561,
The Court does not need to resolve this legal question here because the record supports that Debtor should be held vicariously liable for his partner’s fraud under Strang, Walker and Miller. Even if the Court were to accept Debtor’s argument that he had no idea that Brown was conducting himself in a less that legitimate manner and that he genuinely did not see the warning signs of fraud, under Strang, there is sufficient evidence to find that the two parties acted as partners and Debtor, as the innocent partner, may be held liable for Brown’s fraud. As set forth above, there is ample evidence to support the Court’s finding that Debtor should have known that Brown was engaged in fraudulent conduct, therefore, under the heightened requirement, he is liable for Brown’s fraud under Walker as well.
The next question for the Court is whether the record supports a finding that Debtor should have known that Brown’s investment opportunity was fraudulent and that Brown was engaged in fraudulent activity. Despite the many red flags that should have caused Debtor to engage in some investigation of Brown’s history and provide some genuine oversight of the investments, the evidence is that Debtor ignored the warning signs. The Court has already identified numerous examples of red flags which should have alerted Debtor to the obvious conclusion that Brown was engaged in fraudulent activity, including Brown’s poor financial status, his involvement in numerous failed investments, his fraudulent advertising regarding securities liscensure which resulted in a $5,000 fine, the similarities between the failures in the first and the second round of investments and ultimately the investigation instigated by the FBI. Debtor ignored all of the red flags that should have, at the very least, placed him on notice that Brown may not be as sophisticated or successful in the area of investing money as he purported to be and that some oversight by the CEO or someone within the company with investment experience was warranted. The Court finds, however, that the evidence is so obvious and egregious that Brown was involved in a fraudulent scheme to steal Plaintiffs’ money that Debtor knew or should have known about the fraud. Because Plaintiffs’ investments and damages arose from a partnership between Debtor and Brown, pursuant to Strang and Walker, Debtor has nondischargeable liability for Brown’s fraud upon all of the Plaintiffs.
C. Debtor’s Direct Liability for Violation of Federal Securities Laws Under § 523(a)(19)
Section 523(a)(19) renders nondischargeable debts arising from securities law violations and fraud in connection with a purchase or sale of securities. This section was added to the Bankruptcy Code by § 803 of the Sarbanes-Oxley Act of 2002.
See
Sarbanes-Oxley Act of 2002, Pub.L. No. 107-24, 116 Stat. 745. Its purpose was to “[a]mend the Bankruptcy Code to make judgments and settlements based upon securities law violations nondis-chargeable, protecting victims’ ability to recover their losses.”
In re Chan,
(A) is for
(i) the violation of any of the Federal securities laws, ... any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or
(ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security; and
(B) results, before, on, or after the date on which the petition was filed, from
(i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding;
(ii) any settlement agreement entered into by the debtor; or
(iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgement payment, attorney fee, cost, or other payment owed by the debtor.
11 U.S.C. § 523(a)(19) (italicized words added by BAPCPA).
Prior to the amendment by BAPCPA, it was well settled that § 523(a)(19) required a pre-bankruptcy judgment, order or settlement agreement memorializing liability for the underlying securities law violation as a condition precedent for a nondischargeability action in the bankruptcy court. The addition of the words “before, on, or after the date on which the petition was filed” by BAPCPA has invited a debate as to whether § 523(a)(19) now allows a bankruptcy court to render its own determination of liability for securities law violations or whether the liability determination must still be made outside of the bankruptcy court.
See Chan,
Although the Court would likely be persuaded by the reasoning set forth in the
Jafari
opinion, thereby requiring a non-bankruptcy forum to determine liability on Plaintiffs’ claims of securities fraud and securities violations, because of the unique circumstances in this case, it can save that determination for another day. The Court finds that Debtor has already consented to the Bankruptcy Court having jurisdiction to determine the issue of liability and dis-chargeability, therefore, Debtor has either waived his right to raise this issue or is estopped from raising it. As noted previously in this opinion, on May 6, 2005, the Missouri Attorney General filed a lawsuit in the Circuit Court of Boone County, Missouri seeking a permanent injunction against Debtor (“State Law Suit”),
57
enjoining any and all activities associated
1. Missouri Uniform Securities Act of 2003
Missouri Revised Statute § 409.5-509(b) states that a person may maintain a private cause of action against the seller of securities if the seller sold securities in violation of § 409.3-301. Section 409.3-301 states that:
It is unlawful for a person to offer or sell a security in this state unless:
(1) The security is a federal covered security;
(2) The security, transaction, or offer is exempted from registration under sections 409.2-201 to 409.2-203; or
(3) The security is registered under this act.
Mo.Rev.Stat. § 409.3-301.
a. The contracts executed by Plaintiffs constitute a “security.”
There is no dispute that none of the investment contracts executed in this case were registered with the Missouri Securities Commission. 59 Debtor argues that he did not violate Missouri state securities laws because the contracts were not securities that were required to be registered and he was not in the investment business. 60 Trom, Henderson, J. Fields, T. Fields and Reitz argue that the contracts they executed constitute an “investment contract” which is a “security” under § 409.1-102(28), therefore, pursuant to § 409.3-301, Debtor was required to register the contracts as securities with the Missouri Commissioner of Securities. 61 They further argue that Debtor violated § 409.1-102(26) when he offered to sell and sold the securities/investment contracts to them.
According to Missouri case law, an investment contract is (1) an investment of money, (2) in a common enter
Plaintiffs presented evidence of the contracts they executed regarding what they were told was an exclusive high-yield investment opportunity with high rates of return and no risk to the initial investment. A ‘common enterprise’ is “an enterprise in which the fortunes of the investor are interwoven with those of either the person offering the investment, a third party, or other investors.” Mo.Rev. Stat. § 409.1-102(28)(D). In the first round of investments, Trom and Debtor’s investment money was pooled together in the Jennifer Schimmel escrow account and in the second round the evidence is that the remaining eight Plaintiffs wired their principal investment to the Dennis Cole escrow account where it was pooled together. At one point there was as much as $600,000 of Plaintiffs’ pooled funds in that account. Applying the applicable statutory definitions and the facts in evidence, the Court concludes Plaintiffs satisfied their burden of establishing that the contracts they executed constitute “investment contracts” under the Missouri Securities Act.
b. Debtor “sold” or “attempted to sell” securities.
Debtor cites testimony from Bowman and Williams in support of his next argument that, if the contracts are determined to be securities, he did not violate securities laws as he was “simply not in the securities business.” His argument is that he did not actually sell anything to Plaintiffs, therefore, he is not liable.
The term “offer to sell” includes every attempt or offer to dispose of, or solicitation of an offer to purchase, a security or interest in a security for value. Mo.Rev.Stat. § 409.1-102(26). Most courts that have interpreted “offer” as it is used in the Securities Act of 1933,
62
have explicitly recognized that an expansive definition is necessary as the term goes “well beyond the common law concept of an offer, and that even if the offer, once accepted, did not give rise to an enforceable contract, that fact is immaterial in determining whether an offer to sell securities occurred.”
Moses v. Carnahan,
The record supports the Court’s finding that Debtor “sold” and “offered to sell” the investment contract to Trom, Henderson, J. Fields, T. Fields and Reitz. Debtor specifically solicited these Plaintiffs to invest their money in the investment opportunity that he, Brown and Williams were promoting. Debtor offered numerous assurances and explanations to quell any apprehension they may have had. Debtor did much more than simply announce an opportunity about some arbitrary investment program. Bowman testified that Debtor was personally involved in the sales of investments, that he was likely the main sales contact for Trom and Henderson, and that for the two Fields and Reitz, he sat in on the meeting at Vertical’s office, answered questions and explained the program. He was described as the “closer.” 63 Debtor was not sitting on the side-lines while the investments were being sold through his company, he was a key player. Bowman testified convincingly that Debtor’s day-to-day work at Vertical involved working the investment side of the shop with Williams. He may not have sold mutual funds, or stocks, but there is ample evidence in the record to support the Court’s finding that he sold investment contracts. William’s concluso-ry assertions that Debtor did not sell investments is contradicted by the weight of the evidence and the specific testimony regarding Debtor’s involvement in the sale of the investments to these particular Plaintiffs. There is competent and substantial evidence in the record to support the Court’s finding that Debtor “offered to sell” and “sold” “investments contracts” to Henderson, J. Fields, T. Fields, and Reitz, which were not registered. Debtor violated Missouri securities laws and the debts associated with these violations are nondis-chargeable pursuant to § 523(a)(19).
Plaintiffs also argue that Debtor is liable for statutory securities fraud pursuant to Mo.Rev.Stat. § 409.5 — 509(b). A person is liable to a purchaser for statutory securities fraud if the person (1) sells a security (2) by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statement made, in light of the circumstances under which it is made, not
2. Exemption
Section 409.2-202 of the Missouri Securities Act of 2003 identifies several transactions which are exempt from the requirements of § 409.3-301. Debtor argues, in the alternative, that if the Court finds that the contracts entered into by Trom, Henderson, J. Fields, T. Fields and Reitz are investment contracts, thus securities pursuant to § 409.1-102(28), that pursuant to § 409.2-202(14) or 17 CFR § 230.505, the Court should find that Debtor was exempt from the requirement that they be registered. According to § 409.2-202(14), the following transaction would be exempt from the registration requirements of § 409.3-301:
A sale or an offer to sell securities of an issuer, if part of a single issue in which:
(A) Not more than twenty-five purchasers are present in this state during any twelve consecutive months, other than those designated in paragraph (13);
(B) A general solicitation or general advertising is not made in connection with the offer to sell or sale of the securities;
(C) A commission or other remuneration is not paid or given, directly or indirectly, to a person other than a broker-dealer registered under this act or an agent registered under this act for soliciting a prospective purchaser in this state; and
(D) the issuer reasonably believes that all the purchasers in this state, other than those designated in paragraph (13) are purchasing for investment.
Mo.Rev.Stat. § 409.2-202(14).
The burden of proving an exemption is upon the person claiming it.
Moses,
Debtor adduced no positive or negative evidence to establish facts which would support eligibility for an exemption under either Mo.Rev.Stat. § 409.2-202(14) or 17 C.F.R. § 230.505 in this case. Debt- or merely argues that if the Court accepts Plaintiffs’ evidence, then the one of the exemptions must apply. Debtor asks the Court to assume that there were only a certain number of investors based on Plaintiffs’ evidence and assume there was no advertising based on the lack of evidence adduced at trial. The Court cannot find that Debtor has met his burden by a preponderance of the evidence when he is asking the Court to assume that he has established each and every element of the exemption. There is no exemption in this case.
D. Debtor’s “Controlling Person” Liability
Plaintiffs argue that Debtor is liable as a “controlling person” under § 20 of the Securities Exchange Act of 1934. This section provides as follows:
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
15 U.S.C. § 78t(a). Plaintiffs concede that such liability has been held dischargeable in this Circuit, although they are incorrect in asserting that decision was made with reference to § 523(a)(19) in
In re Miller,
Accordingly, the Court cannot find any debt Debtor may have as a controlling person nondischargeable under § 523(a)(2)(A). If Plaintiffs had in fact established that Brown, Williams or any other person controlled by Debtor engaged in primary violations of the securities laws such that Debtor was liable as a controlling person, that liability is itself a securi
III. DAMAGES
There are two separate measures of damages in this case: (1) common law damages resulting from Debtor’s direct and vicarious fraudulent representations and false pretenses and (2) statutory damages for Debtor’s securities violations allowable under Mo.Rev.Stat. § 409.5-509(b)(3).
A. Common Law and Statutory Damages
Under common law fraud, damages are measured at the time of the fraudulent transaction, although special damages directly caused by the fraud are also recoverable.
Little v. Morris,
Plaintiffs’ actual damages are as follows:
Plaintiff: Actual Damage Amount:
Mike from_$ 176,000_
LaDonna S. Henderson $ 300,000-$7,272 (refunded amcmnt)=$292,728
James A. Fields $ 50,000
James D. Fields $1000,000
Patricia A. Reitz $ 50,000
Terry J. Schippers $ 50,000
James D. Teegarden $ 50,000
Joshua P. Haeflinger $ 100,000
Tana S. Cutcliff $ 50,000
Section 409.5-509(b)(3) of the Missouri Securities Act of 2003 states that
Actual damages in an action arising under this subsection are the amount that would be recoverable upon a tender less the value of the security when the purchaser disposed of it, and interest at the rate of eight percent per year from the date of the purchase, costs, and reasonable attorneys’ fees determined by the court.
The evidentiary record in this case establishes that Debtor is liable to Plaintiffs Trom, Henderson, J. Fields, T. Fields and Reitz for violation of Mo.Rev.Stat. § 409.3-301, and therefore, entitled to statutory damages under Mo.Rev.Stat. § 409.5-509(b)(3) in the amounts set forth above.
B. Consequential Damages
In fraudulent misrepresentation cases, the plaintiff may have a choice of remedies, which may be pursued alone or sometimes in combination. Plaintiff may (1) elect to rescind the transaction, tender the benefit received, and seek to recover the purchase price or other consideration paid; (2) affirm the contract and seek to recover the difference in value between what was promised and what was actually received; or (3) seek to recover damages for breach of contract as well as in tort for the fraud.
See Trimble v. Pracna,
Reitz claims he is entitled to consequential damages resulting from his lost opportunity to exercise his option to acquire certain stock, before an expiration date and resell the acquired stock for profit. He argues, and the facts support, that he informed Debtor that he needed his initial investment of $50,000 returned by a certain date so that he could use that money to exercise his option with regard to these SLS warrants. Debtor assured him that he would have no problem getting his initial investment back. The problem with the evidence regarding Reitz’s lost opportunity to exercise his option, however, is that it is too remote and speculative for the Court to find with reasonable certainty that he actually would have generated any particular profit on a subsequent sale. While the option price is known and the stock prices in evidence were such that the options were “in the money” (meaning that the value of the stock was in excess of the cost to exercise the options), the Court cannot conclude with any degree of reasonable certainty based upon the evidentiary record what profit Reitz may have realized on the ultimate sale of the stock. He did not, for example, testify that he would have immediately sold the stock, which might have permitted the Court to utilize the stock prices in evidence to calculate a profit. If he would in fact have held the stock for some period of time, it is unclear that the value of the stock would have been at that time and there would be no evidentiary basis for the Court to award any particular amount as damages. Accordingly, the Court finds this aspect of his damages to be too speculative and remote for it to find with reasonable certainty that Reitz satisfied his burden with regard to his request for consequential damages.
C. Punitive Damages
Punitive damages may be awarded “if the evidence and the inferences drawn therefrom are sufficient to permit a reasonable [trier of fact] to conclude that the plaintiff established with convincing clarity-that is, that it was highly probably-that the defendant’s conduct was outrageous because of evil motive or reckless indifference.”
Brady v. Curators of University of Missouri,
After considering all relevant factors, the Court finds that an award of punitive damages is appropriate in this case. Debtor misrepresented or omitted numerous facts in this case which caused Plaintiffs’ damages. He admitted that he intentionally did not read relevant legal documents, that he did not know anything about the escrow account in which the investors money would be placed and about which he made numerous promises regarding its safety and legitimacy and he purposely ignored blatant warning signs of illegitimate and fraudulent conduct by Brown, all so that he could profit from the fraudulent scheme that Brown had formulated. He was in a far better position than the Plaintiffs in terms of intelligence, affluence and financial worth to have the correct information, he just chose not to either acknowledge it or acquire it. Debtor aggravated the situation after the FBI became involved by encouraging the Plaintiffs not to cooperate with legal authorities, to “circle the wagons” so that they could get their returns faster. The evidence of recklessness and indifference to the Plaintiffs is egregious in this case and warrants an award of punitive damages.
In his own Plan, Debtor lists Plaintiffs’ damages as twice the actual amount, for a total liquidated damages amount of treble damages. Based on the facts of this case, the Court finds this amount appropriate and reasonable under the circumstances.
D. Attorney Fees
The Bankruptcy Code makes no provision for an award of attorneys’ fees to a prevailing creditor and there is no contractual basis for such an award in this case. Plaintiffs Trom, Henderson, J. Fields, T. Fields and Reitz have established, however, that Debtor violated Mo.Rev.Stat. § 409.3-301, and, therefore, they are entitled to recover reasonable attorneys’ fees pursuant to Mo.Rev.Stat. § 409.5-509(b)(3). The Court will schedule a hearing to determine the amount of attorneys’ fees to be awarded.
IY. PLAN CONFIRMATION DISCUSSION AND ANALYSIS
On June 20, 2002, Debtor and his wife organized Missouri limited liability companies for Green Meadow Properties, LLC (“Green Meadow Properties”) and Bluff Creek Properties, LLC (“Bluff Creek Properties”). Pursuant to the Operating Agreements for these companies, Debtor and his wife became the sole owners of the companies as “tenants by the entirety.”
64
On September 16, 2005, Debtor and his wife entered into a Revocable Trust Agreement which created the “Kathleen S. Reuter Revocable Trust.
65
” On that same date, Debtor and his wife also entered into a separate Revocable Trust Agreement which created the “Nathan P. Reuter Revocable Trust” (collectively referred to as the “Trusts”)
66
. Contemporaneously, they entered into an Interspousal Agreement
67
.
Debtor filed the Second Amended Plan of Reorganization Dated July 29, 2008 (the “Plan”), and the First Amended Disclosure Statement Dated July 29, 2008 (the “Disclosure Statement”). On September 8, 2008, Plaintiffs filed an Objection to Debt- or’s Second Amended Chapter 11 Plan of Reorganization (the “Objection”). Plaintiffs’ Objection set forth eight specific arguments for denial of confirmation of Debtor’s Plan. However, the Court notes that the Plaintiffs briefed only three of those arguments. Therefore, arguments that Plaintiffs’ failed to brief the Court will treat as abandoned and limit this opinion to discussion of the arguments contained in Plaintiffs’ post-trial brief. Specifically, Plaintiffs raised the following three objections to confirmation: (a) the plan was not proposed in good faith under § 1129(a)(3); (b) the plan is not feasible under § 1129(a)(ll); and (c) the plan is not in the best interest of the creditors under § 1129(a)(7).
In order to confirm a Chapter 11 Plan, the Court must find that each of the required elements of § 1129(a) have been satisfied.
In re Gilbertson Restaurants LLC,
A. 11 U.S.C. § 1129(a)(3): Good Faith
Plaintiffs argue that the Plan should not be confirmed because Debtor filed the bankruptcy in bad faith. Specifically, Plaintiffs contend that the motive behind Debtor filing a Chapter 11 was not to restructure his debt as a result of being in serious financial distress, but rather, to avoid being found personally liable to Plaintiffs as a result of a civil lawsuit pending against Debtor in federal district court. Plaintiffs also complain that Debtor has engaged in a pattern of concealment and evasion with regard to the true amount of his disposable income such that conversion or dismissal of the bankruptcy case is warranted. As Debtor noted, the problem with raising these arguments with regard to conversion or dismissal in the Objection is that they should have been brought in the form of a motion which the Plaintiffs had not done until March 10, 2010, and which the Court will deal with separately. A motion to dismiss the case for bad faith in filing on the basis of denying Plaintiffs their right to litigate in their chosen forum at this juncture is not timely considering the fact that the parties expended considerable time and resources on preparing for and attending the trial on the plan confirmation and dischargeability issues. The proper time for Plaintiffs to have raised such issues would have been prior to the Court conducting a week long trial. Accordingly, the Court will not entertain the good-faith argument in so far as it relates to dismissal of the bankruptcy case.
However, Plaintiffs timely raised lack of good-faith under § 1129(a)(3) in their Objection to confirmation of the Plan and the Court will address that part of Plaintiffs’
Section 1129(a)(3) requires that “[t]he plan has been proposed in good faith and not by any means forbidden by law.”
In re Kellogg Square Partnership,
According to the good faith requirement of section 1129(a)(3), the court looks to the debtor’s plan and determines, in light of the particular facts and circumstances, whether the plan will fairly achieve a result consistent with the Bankruptcy Code. The proper inquiry is whether the plan constitutes an abuse of the provisions, purpose or spirit of the Code. The court should judge each case on its own facts after considering all the circumstances of the case.
See Noreen v. Slattengren,
Whether a plan is proposed in good faith turns on an examination of the totality of the circumstances surrounding the plan
and
the bankruptcy filing.
Noreen,
The totality of the circumstances of this case evidence bad faith on the part of the Debtor. First, as noted above, it is appropriate for the Court to look at the circumstances surrounding the filing of the bankruptcy. As Plaintiffs’ point out, at the time of the bankruptcy filing, Debtor was facing a civil lawsuit in federal district court and Plaintiffs had already obtained a default judgement against Vertical Group as a co-defendant.
However, Debtor’s motivation and sincerity (or lack thereof) in seeking reorganization and formulating the Plan do counsel against a finding of good faith. Chapter 11 is intended for valid reorganization of “financially troubled businesses,” not to permit financially solvent companies to “rapidly conclude litigation to enable a continuation of their business.”
See In re Cedar Shore Resort, Inc.,
Further, as Plaintiffs note in their Brief, Debtor has no mortgage or other consumer debt and the other liability listed on Debtor’s Schedules, that of a $2,956.83 hospital bill, was paid by Debtor after filing bankruptcy. Debtor also testified that he is current on all of his bills and that his wife gives him around $4,000 a month from the Kathleen Reuter Trust to live and pay bills. Debtor has failed to list this income on his Schedules. Debtor has also failed to amend his Schedules with updated values for his interest in Monarch Title Company despite testifying to the fact that such company is indeed worth more than $0. Also, it appears to this Court that, prior to filing his bankruptcy case, Debtor designed and structured his entire asset interest so that his creditors could not receive any payment from such assets. As discussed at length below, he and his spouse put most, if not all, of their valuable assets into revocable trusts in what appears to this Court to be a veiled attempt to shield them from his creditors. Further, he contributed his labor at no cost to build the house that he and his spouse currently live in and that is owned by one of his L.L.C.’s and held in the Kathleen Reuter Trust 72 . His Schedules indicate that he has no debt other the unliquidated claims of Plaintiffs.
Also, Debtor’s Plan indicates a net negative monthly income which in and of itself does not exhibit bad-faith but the Court has doubts as to whether Debtor is maximizing his income. He is voluntarily choosing to be employed as an independent contractor earning considerably less than
Each of these actions taken alone may not lend itself to the conclusion that Debt- or acted in bad faith in proposing his Plan, but taken together in a totality of the circumstances analysis, Debtor’s actions have convinced the Court that his Plan was not proposed in good faith. Indeed, the Debtor’s admitted motivation for seeking chapter 11 relief suggests that his Plan was proposed not with the intention of satisfying Plaintiffs’ claims to the greatest extent possible, but with the intention of avoiding payment of those claims to the greatest extent possible, and the meager repayment percentage proposed by the Debtor’s plan supports this conclusion. Such a purpose is the antithesis of good faith and not consistent with the spirit and purpose of Chapter 11.
B. 11 U.S.C. § 1129(a)(ll): Feasibility
One of the requirements of confirmation is a finding by the court that “[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.” 11 U.S.C. § 1129(a)(ll). This statutory provision established what is commonly known as the “feasibility” requirement.
See In re Danny Thomas Properties II Limited Partnership,
“In determining whether [a plan] is feasible, the bankruptcy court has an obligation to scrutinize the plan carefully to determine whether it offers a reasonable prospect of success and is workable.”
Monnier,
Plaintiffs first argue that Debtor’s plan shows no disposable income and cannot pay the Missouri Attorney General $200 per month as proposed
73
nor can it pay professional fees or administrative expenses such as trustee fees which are re
The Court cannot, in this instance, find that Debtor’s Plan could be termed “workable.” Nothing in the Debtor’s testimony, Plan or Disclosure Statement affords the Court a basis upon which to place confidence in the Debtor’s future income or expense projections or Debtor’s ability to fund even the minimum monthly plan payment required to the Missouri Attorney General.
C. 11 U.S.C. § 1129(a)(7)(A): Best Interest of Creditors
Section 1129(a)(7)(A) requires that:
[w]ith respect to each impaired class of claims or interests—
(A) each holder of a claim or interest of such class—
(i) has accepted the plan; or
(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under [Cjhapter 7 of [the Bankruptcy Code] on such date ...
Plaintiffs argue that the Plan does not meet the requirements of this section because the Debtor’s interest in the Trust property is not tenancy by the entireties property, and would therefore be available to Plaintiffs if liquidated under Chapter 7 and, thus, should be included in Debtor’s Plan. Debtor asserts that the Trust property is still held by him and his wife as tenancy by the entireties property and is therefore only available for their joint creditors, which the Plaintiffs are not.
The first issue is whether Plaintiffs claims are in impaired classes. Section 1129(a)(7) requires a class to be impaired in order to reject the plan on this basis. Under § 1124, a class of claims or interests is impaired unless the plan “leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest.” 11 U.S.C. § 1124(1). There is a strong presumption of impairment in this district and “even the slightest impairment will entitle a creditor to vote on the confirmation.”
See In re Wilhelm,
In this case, the Court must look at the following analysis regarding whether the Trust Property is exempt property of the estate or not to determine whether the Plaintiffs’ rights have been altered by the Plan. Plaintiffs argue that they are impaired because the Plan will not pay them the full amount that they would be owed based on their liquidated, allowed claims. But the question here is whether, in a liquidation/best interest of creditors analysis under § 1129(a)(7), the Plan need include the Trust Property value because it is Debtor’s individual estate property (which has not been done), or whether it is tenancy by the entireties property and thus not required to be included as payment to his individual creditors. Based on the analysis that follows, the Court finds that Plaintiffs’ rights are in fact impaired under the Plan since they may be receiving less than what they would receive in a Chapter 7 if the Trust Property were liquidated. Further, the Plan proposes to pay Plaintiffs monthly over a period of sixty months, thus delaying receipt by Plaintiffs of whatever amounts their allowed claims are determined to be
74
. Thus, Plaintiffs’ legal and equitable rights have certainly been at least slightly altered and thus impaired.
See In re Haardt,
The Plaintiffs have not accepted Debt- or’s proposed plan so the Court must determine whether the Plaintiffs will receive not less under the plan than they would if the case were converted to a Chapter 7 pursuant to § 1129(a)(7). Plaintiffs contend that under a Chapter 7 liquidation, they would be entitled to repayment from Reuter’s liquidated interest in the Trust Property. Debtor counters that the Trust Property is an exempt asset under § 522(b)(3)(B), which exempts property held with a non-debtor spouse as tenants by the entirety.
The bankruptcy estate succeeds to “all legal or equitable interests of the debtor in property as of the commencement of the case,” including those powers that the debtor may exercise for his own benefit. 11 U.S.C. § 541(a)(1), (b)(1). Where there is no provision in a trust restraining voluntary or involuntary alienation of any of the beneficiary’s interest in the trust, every right of the debtor under the trust is property of the estate.
See In re Woods,
Therefore, the Court must determine whether the Trust Property is in fact held by Debtor and his wife as tenants by the entirety and thus is exempt from Debtor’s individual creditors 75 , or whether the tenancy by the entireties status has been severed and Debtor’s share of the Trust Property is non-exempt property of Debt- or’s estate. If the Court finds that Debtor has severed the tenancy by the entireties status, then the non-exempt separate property of Debtor must be included in the proposed plan, which it is not.
Debtor is claiming an exemption, and Plaintiffs are disputing such exemption, in the following assets: (1) his interest in Green Meadow Properties; (2) his interest in Bluff Creek Properties; and (3) cash proceeds from the sale of a residence located on Woodberry Court in Columbia, Missouri.
See
Plaintiffs’ Brief, p. 91. Plaintiffs contend that
In re Stanke,
The possessory estate known as a tenancy by the entirety is created in the same way as a joint tenancy — unity of time, title, interest and possession — with the additional qualification that a tenancy by the entirety can only be possessed by a husband and wife. Commentary on Pos-sessory Estates, Vol. 23 V.A.M.S., § 40, p. 37-38 (1949). Additionally, any conveyance of property to a husband and wife is presumed to create a tenancy by the entirety.
Nelson v. Hotchkiss,
The other distinguishing characteristics of a tenancy by the entirety are that property held as such cannot be seized to satisfy the individual debts of one of the spouses,
Garner v. Strauss,
Personal estates held by the entirety can be changed to other types of estates by consent, agreement or acquiescence. The husband and wife can by consent, agreement, or acquiescence change the character of entirety property. A tenancy by the entirety may be severedduring the lifetime of the parties by-agreement, actual or implied, or by any conduct or course of dealing sufficient to indicate that all parties have mutually treated their interests as belonging to them in common. The change, however, cannot be effected by the unilateral act, understanding or conduct of one of the spouses. To cause such a change the husband and wife must act together in a joint and mutual effort.
Merrill Lynch,
In
Stanke,
the Court looked at several factors in determining that the debtors had severed the tenancy by the entireties status of their trust property. This Court will address each of those factors as they relate to this case. First, the
Stanke
Court considered the transaction as a whole. It determined that the two tenancy agreements, two trust agreements, two assignments of personal property to the newly created trusts, and several deeds conveying property to the trusts, were all executed for the apparent purpose of creating two trusts that would have favorable tax consequences for the debtors and their heirs.
Stanke,
We have determined that it is advantageous for us to restructure ownership of our property and assets, or some portion thereof, so that we may lawfully avoid or minimize, to the extent lawfully practicable, the burden of federal and state estate taxation which would otherwise be imposed at our respective deaths. To that end, we are each adopting or creating a revocable trust....
As Stanke noted, in order to achieve that objective, Debtor and his spouse necessarily must have severed their tenancy by the entireties and created a tenancy in common. The Court acknowledges that the document in Stanke included explicit language that the debtors “now wish to convert all or part of their joint tenancy property into tenancy in common property.” It further stated that the debtors “hereby grant, convey, and transfer their respective interest in their joint tenancy property to themselves as tenants in common .... ” However, the Stanke court did not rely solely on that language, nor on any single factor, and neither will this Court. Debtor argues that the Interspousal Agreement declared that they intended to preserve the tenancy by stating that “none of the changes in the form of ownership of our property will affect or modify the present, or future character of such property, as marital or non-marital (separate) property for dissolution of marriages purpose. 78 ” The Interspousal Agreement states such intention in three separate paragraphs. However, in this Court’s view, this only reinforces the fact that the Debtor and his spouse were only concerned with maintaining the character of the property for “dissolution of marriages purposes” and not for other purposes. It thus has little or not bearing on the issues before this Court.
In
Stanke,
the court also looked at the trust document and determined that it con
Article II, B. In addition, the trustees shall distribute to me or others such amounts of net income and principal as I, if not disabled as determined under paragraph C of this Article, may from time to time direct in uniting.
This paragraph is clearly at odds with a tenancy by the entireties concept. It states that the trustees shall distribute to me (being Kathleen Reuter) whatever amounts I may direct in writing. This right is not limited by any other provision in the Trust and is in direct contradiction to the primary characteristic of tenancy by the entireties property that neither spouse may burden the property unilaterally.
Compare In re Bellingroehr,
Article VII, A. Any trustee acting hereunder may resign at any time by delivering not less than thirty days written notice ....
Article VII, B. If I cease to act as trustee hereunder for any reason, then my spouse, Nathan P. Reuter, shall serve as sole trustee hereunder.
If Debtor or his spouse should choose to “resign at any time” or ceases to act as trustee for any reason, then the other spouse would be the sole trustee and have the power to encumber, sell or burden the trust property unilaterally.
Compare Bellingroehr,
Debtor also argues that the Stanke court based its decision on the fact that the debtor was also a trustor under the trust which gave him certain rights to dispose of trust property. Again, this was merely one factor that court looked at and even though this is not the case here, this Court finds that all of the other reasons discussed above are more than sufficient to determine that Debtor and his spouse intended to sever the tenancy by the entire-ties nature of the property. For example, as noted, the fact that Debtor’s spouse can at any time resign as trustee, thus enabling Debtor to act as sole trustee is inconsistent with the concept of tenancy by the entireties.
Further, Debtor argues that because the transfers of property into the Trusts were by the Debtor and his spouse to the Debt-
Based on the above analysis and discussion, the Court finds that, as in Stanke, the conduct of Debtor and his spouse in establishing the Trusts and transferring the Trust Property indicated an intent to sever the entirety interests they held in the Trust Property and rebutted the presumption that the transfers of the Trust Property were to Debtor and his spouse as tenants by the entirety. The result is that the Trust Property held in the Trusts is held as tenants in common by Nathan P. and Kathleen S. Reuter and therefore Debtor’s interest is not exempt under § 522(b)(2)(B).
To that, Debtor also argues that he holds only “legal” title in the Trust Property as “trustee” and thus, even if the tenancy by the entireties was found to have been severed, Debtor has no present interest in the Trust Property that could be distributed to Plaintiffs. However, Debtor does hold equitable title as beneficiary, even if it is contingent, and
any
interest which a debtor retains in a trust is property of the estate.
Askanase,
Debtor also makes the argument that even if the tenancy by the entirety status of the Trust Property was severed, that Debtor has no interest in the Trust absent avoidance of the transfer itself. Debtor argues that the transfer is not voidable as in “fraud of creditors” under Missouri’s Uniform Fraudulent Transfer Act because entireties property is not susceptible to “fraudulent transfer.” He also asserts that a transfer of property by one tenant by the entirety to the other cannot be fraudulent as to creditors of the transferor even when accompanied by actual fraudulent intent nor can the transfer be constructively fraudulent simply because the
The specific value of Debtor’s interest in the Trust Property or how that value will be realized is not the issue before this Court. Instead, the Court need only find that Debtor has not met his burden of proof by a preponderance of the evidence that his plan is proposed in the best interest of the creditors/Plaintiffs and that they would not receive more if Debtor’s interest in the Trust Property were to be liquidated by a trustee in a Chapter 7 proceeding. The Court leaves for another day, if the case is converted to a Chapter 7, for a trustee to make whatever arguments he or she determines are necessary to attempt to realize the value of the Debtor’s interest in the Trust Property.
V. CONCLUSION AND ORDER
In summary, the Court finds that under 11 U.S.C. § 523(a)(2)(A) all Plaintiffs’ debts are excepted from discharge and that they have incurred damages in the following amounts:
Plaintiff Actual Damages (recoverable under common law and Mo.Rev.Stat. § 409.5 — 509(b)(3), but Plaintiffs may recover pursuant to only one of the available legal theories) Punitive Damages (recoverable under common law, not pursuant to Mo. Rev.Stat. § 409.5-509(b)(3)) Attorneys’ Fees (recoverable under Mo.Rev.Stat. § 409.5 — 509(b)(3))
Mike Trom $175,000 twice the actual tbd
LaDonna S. Henderson $292,728 twice the actual tbd
James A. Fields $50,000 twice the actual tbd
James D. Fields $100,000 twice the actual tbd
Patricia A. Reitz $50,000 twice the actual tbd
Terry J. Schippers $50,000 twice the actual not available
James D. Teegarden $50,000 twice the actual not available
Joshua P. Haeflinger $100,000 twice the actual not available
Tana S. Cuteliff $50,000 twice the actual not available
The Court further finds that punitive damages shall be awarded to all Plaintiffs in the amount of twice their actual damages pursuant to common law;
Furthermore, the Court will not confirm the Debtor’s Chapter 11 Plan because the Court finds that the Plan was not filed in good faith pursuant to 11 U.S.C. § 1129(a)(3), is not feasible under § 1129(a)(ll) and is not in the best interest of creditors under § 1129(a)(7)(A). For all the reasons discussed above, Plaintiffs’ Objection to Confirmation is sustained.
A separate Order will be entered in accordance with Bankruptcy Rule 9021.
Notes
. In its initial Trial Brief filed with the Court, Plaintiffs raised, in addition to the claims addressed in this opinion, claims for relief under 11 U.S.C. § 523(a)(4), the Missouri Merchandising Practices Act, RICO and Federal Securities Act violations. Plaintiffs neither adduced evidence specific to these claims at trial nor did they brief these matters in their Post-Trial Brief. The Court concludes these claims have, therefore, been abandoned.
See, e.g., Farmers’ Sav. Bank v. Allen,
. TRV-1173.
. TR V-1191-2.
. TR 11-471.
. TR 11-434.
. Plaintiff Henderson received $7,272 back from Brown.
.TR V-1176. The Court finds Debtor’s stated reasoning for investing his own money, that of trying out the program before trying it out on others, disingenuous considering the other investor in this first investment was his long-term friend and neighbor.
. TRV-1209.
. TR 1-152.
. TR11-238.
. Plaintiffs’Exhibit No. 61.
. TRIV-1284-86.
.TRV-1243.
. TR 1-137.
. TR 11-456.
. TR 11-237, 266.
. TR 11-373-74.
. TRIII-519.
. TRV-1245.
. Plaintiffs' Exhibit No. 79, p. 232.
. TR 11-239.
. TR 11-374 (J. Fields); III-513 (Reitz); HI-616 (T. Fields).
. TR 1-135.
. Plaintiffs’ Exhibit No. 79, p. 227.
. TRIV-786.
. Plaintiffs’ Exhibit No. 79, p. 150 and p. 281.
. TRV-1240.
. Plaintiffs' Exhibit No. 79, p. 170-71.
. Plaintiffs' Exhibit No. 65 ¶ 18; Plaintiff's Exhibit No. 70; TR VI-1297.
. Plaintiffs’ Exhibit No. 79, p. 174.
. Plaintiffs’ Exhibit No. 65.
. TR 11-445.
. TR VI-1344.
.TR 1-136-37.
. Plaintiffs'Ex. No. 6.
. Plaintiffs’Exhibit No. 6.
. TR. VI-1309.
. TR VI-1322.
. TR VI-1337.
. TR VI-1338.
. Plaintiffs'Exhibit No. 76.
.TRV-1244.
. TR VI-1320.
. TR VI-1320.
. TR VI-1339.
. Plaintiffs' Exhibit No. 79, p. 287-88.
. Plaintiffs’ Exhibit No. 79, p. 229.
. TR 11-453, 11-451-52.
. TRV-1160.
. The damages element of Plaintiffs' fraudulent misrepresentation and false pretenses claim are included in section III of this opinion.
. Plaintiffs’ Exhibit No. 79, p. 283.
. Plaintiffs' Exhibit No. 65.
. Plaintiffs’ Exhibit No. 79, p. 154-156.
. Plaintiffs' Exhibit No. 78, p. 11-12.
. TR 11-450.
. TR 11-450.
. Plaintiffs’Exhibit No. 61.
. Plaintiffs' Exhibit No. 64.
. Because neither Haeflinger, Schipper, Tee-garden nor Cutcliff had a pre-investment contract with Debtor, they do not have a claim under § 523(a)(19).
.TR VI-1366.
. Plaintiffs' Exhibit No. 17 (Henderson), Plaintiffs’ Exhibit No. 24 (Reitz), Plaintiffs’ Exhibit No. 54 (Haeflinger), Plaintiffs' Exhibit No. 43 (James Fields), Plaintiffs’ Exhibit No. 43 (Tony Fields).
. Section 2(3) of the Securities Act of 1933 (15 U.S.C. § 77(b)(3)) defines "offer” and "offer to sell” in exactly the same terms as the Missouri Uniform Securities Act.
Moses,
. TR11-453.
. Debtor's Exhibit 109.
. Id.
. Id.
. Debtor’s Exhibit 109.
. Debtor’s Exhibit 109.
. TR VI-1375-1376.
. Disclosure Statement, II, B.
. See Plan, Article 4.3.7(a)-(c).
. TRI-84:19-86:10.
. Debtor testified to an agreement to pay the Missouri Attorney General $5,000, but has not amended his Plan to reflect the change. The Amended Plan on file shows the amount owed to be $10,000.
. The Plan proposes to pay Plaintiffs' claims as allowed claims for a period of 60 months, pro rata, a sum which upon completion of such sixtieth (60th) monthly payment shall be equal to the difference of all other property to be distributed under the Plan to the holders of claims within such classes and the Debtor’s projected disposable income. See Debtor's Plan, ¶ 4.3.6.
. The Court notes that it has the same concerns the Stanke court had regarding how it would characterize the interests held in the entireties property if it found that Debtor and his spouse had not severed the tenancy through their conduct. If the property is held by two trusts or by Debtor and his spouse as co-trustees this seems to violate the requirement that only married persons can hold property as tenants by the entirety.
.Citing 26 U.S.C. § 2056; see also, Boris I. Bittker and Lawrence Lokken, Federal Taxation of Income, Estates and Gifts § 129.6 (2nd ed.1993).
. Plaintiffs’ Exhibit 79, p. 24:20-23.
. Debtor's Exhibit 109, D.l. & 2.