Merchants Bank of California v. Chai Cho Oh (In Re Chai Cho Oh)Merchants Bank of California v. Chai Cho Oh (In Re Chai Cho Oh)
MEMORANDUM OF DECISION AFTER TRIAL OF ADVERSARY PROCEEDING
Merchants Bank of California (“MBC”) brought this adversary proceeding against debtor Chai Cho Oh (“Debtor”) under 11 U.S.C. §§ 523(a)(2)(A),
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523(a)(2)(B) and 523(a)(6). Based on the findings of fact and conclusions of law set forth below, the
Both parties filed trial briefs, declarations setting forth the direct and reply testimony of their witnesses and evidentia-ry objections to each other’s declarations in accordance with this Court’s February 7, 2002 “Order Setting Trial Date and Establishing Procedures for the Conduct of Court Trial.” The Court conducted a one-day trial of this adversary proceeding on April 16, 2002, at the conclusion of which, the Court entered its “Order (1) Admitting Exhibits and Declarations into Evidence, (2) Ruling on Evidentiary Objections and (3) Setting Post-Trial Briefing Schedule” (the “Evidentiary Order”). Upon review and consideration of (a) thе facts admitted in the February 22, 2002 “Revised Joint Pre-Trial Order,” (b) the parties’ respective pre- and post-trial briefs, (c) the oral argument of counsel, (d) the parties’ declarations and documentary evidence, to the extent admitted into evidence in the Evidentiary Order, and (e) the deposition testimony of Daniel Roberts, and having heard the oral testimony of the parties’ witnesses at the time of trial, the Court makes the following findings of fact and conclusions of law:
I
FINDINGS OF FACT
From approximately August of 1996, until in or about March of 1998, the Debtor’s brother, Philip J. Oh (“Philip”), operated a check cashing business and maintained a bank account for this business at First Global Bank. The Debtor assisted Philip in setting up this business by obtaining a loan secured by his residence and giving the proceeds of that loan to his brother. After providing the loan proceeds to his brother and signing any documents that his brother asked him to sign in connection with obtaining the loan, the Debtor had no further involvement in the operation of his brother’s check cashing business while it maintained a bank account at First Global Bank. The Debtor assumed that his brother’s check cashing business was doing well during this period, as he did not hear or learn anything to the contrary.
In or about February or March of 1998, Philip told the Debtor that he wanted to open a bank account for his check cashing business at MBC in order to reduce the fees that he would be required to pay in connection with maintaining such an account. Philip told the Debtor that, in order for him to be able to open an account at MBC, he would need the Debtor to act as the owner of his check cashing business, because the Debtor had a better credit rating than his brother. Although the Debtor did not want to assist his brother in this endeavor, his mother prevailed upon him to do so, and the Debtor reluctantly agreed to do as his brother (and mother) had requested. The Debtor testified, however, that he never actually had any ownership interest in the сheck cashing business run by his brother, that he
At his brother’s request, the Debtor completed and signed a Fictitious Business Name Statement that was subsequently filed with the Orange County Recorder and given to MBC. (As the Debtor claims to speak and understand very little English, 4 the Debtor testified that he completed this form by copying from a sample form that had been prepared by Philip.) In that statement, the Debtor registers to do business as an individual under the fictitious name, “Jay Enterprise,” at a business address that the Debtor testified is the address of his employer, California Union University, a Bible college in Fullerton. The residence address for the registrant on the statement is the Debtor’s home. The Debtor understood that he was being asked to hold himself out to MBC as the owner of his brother’s check cashing business, even though he really was not the owner of that business in any meaningful sense of the word.
The Debtor understood further that the reason for representing to MBC that he was the owner of his brother’s business was that the Debtor was more creditworthy and had a more attractive balance sheet than his brother and that MBC would be relying on his financial condition and credit history in deciding whether or not to open a bank account for his brother’s check cashing business. The Debtor also understood that MBC would need information on his assets and liabilities and provided Philip with copies of bank statements and other information for his brother’s use in preparing a financial statement for MBC’s review.
Among the bank statements that the Debtor provided to his brother were copies of statements that reflected funds that belonged to California Union University and not to the Debtor. The Debtor told Philip that these funds belonged to a nonprofit corporation and that he did not believe that MBC would consider these funds for the purpose of evaluating his financial condition, but Philip insisted on obtaining copies of these bank statements as well as the Debtor’s personal bank statements, and the Debtor provided them.
In March of 1998, Matthew Roberts was employed as a vice president of MBC. His job duties included overseeing the operations of the cash management services division of the bank. In this capacity,
Matthew Roberts was the individual at MBC that made the decision to permit the Debtor to open a check cashing account at MBC. The Debtor was introduced to MBC and Matthew Roberts by Jay Lee, another check cashing customer of the bank of whom the bank thought highly, as someone who wanted to open a check cashing account at MBC for a new check cashing business. Although Jay Lee’s English skills are also limited, Mr. Lee spoke and understood Korean and spoke and understood more English than the Debtor and therefore acted as a translator for the Debtor during the course of his discussions with Matthew Roberts.
The Debtor went to the bank on at least two occasions. During one of his trips to MBC, the Debtor signed and delivered to Matthew Roberts a number of documents, including the financial statement that was admitted into evidence as Plaintiffs Exhibit No. 3 (the “Financial Statement”).
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The Financial Statement is a package of five pages, the last two of which were signed by the Debtor. Matthew Roberts testified at trial, and Daniel Roberts testified during his deposition,
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that these 5 pages would have been attached to one another,
The Financial Statement contains a number of handwritten interlineations that were not initialed. None of the witnesses was able to identify the scrivener for these interlineations; however, Matthew Roberts explained that the purpose of the in-terlineations was to carryover from page 5, the real estate schedule, the value of the Debtor’s real property and the correct amount of thе real estate mortgage balances to the appropriate spaces on page 3 and to add to page 3 two obligations (Toyota Motor Credit and BofA Lease) that appeared on the Debtor’s Equifax report but did not appear on the Financial Statement. The remainder of the interlinea-tions were necessary to update the asset and liability totals to include the amount of these added items. 8
Several items of information on the Financial Statement are false. On page 2 of Exhibit 3 (page 000007), the statement reflects cash on hand of $68,000, two bank accounts at California Korea Bank with balances of $12,500 and $59,000, respectively, and an account at Downey Savings and Loan with a balance of $8,000. Although he offered a number of possible explanations for the $68,000 of “Cash on Hand,” the most reasonable interpretation of the Debtor’s testimony with regard to this item is that he is not sure where that figure came from, but that it did not reflect any account that belonged to him. 9 With regard to the remaining three accounts, the Debtor testified that he never had any accounts at California Korea Bank and that the funds in these accounts belonged to his employer, California Union College, and not to him.
The Financial Statement, Exhibit 3, is also inaccurate, in that it reflects salaries for the Debtor and his wife that are inflated and ownership of a Ford Armored Truck, with a value of $30,000, that did not belong to the Debtor. With regard to the Schedule of Real Estate Owned, page 000010, the Debtor testified that the mortgage balance figures were fairly close to being accurate, but that he had no idea where the figure of $475 as the monthly cash flow came from and that he did not have any rental income from any property at the time the Financial Statement was prepared.
Sometime prior to the signing of the Financial Statement, MBC obtained a copy of the Debtor’s Equifax report. The Debt- or’s Equifax report reflected a high Isaac score
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and the Toyota and Bank of America obligations that were added by interlin-eation to page 3 of the Financial Statement. At some point prior to opening a
MBC also conducted a site survey, which, as the Debtor planned to operate a mobile check cashing business, involved viewing and photographing the Debtor’s armored vehicle. MBC did not run a search to determine who held title to the vehicle, but did look at the valuation that the Financial Statement had assigned to the vehicle and concluded that that value appeared reasonable in light of the cost of a new armored vehicle and the scarcity of used armored vehicles.
Matthew Roberts testified further that, in deciding to open a check cashing account for the Debtor, MBC relied on the information contained in the Financial Statement (other than the data concerning the Debtor’s income), the Debtor’s Equifax report and high Isaac score and the fact that the Debtor had been brought/referred to MBC by a good customer, Jay Lee. As Jay Enterprises was a new business without any track record, MBC requested a cash deposit to serve as security for overdrafts in the minimum amount required by the bank for this type of account ($15,000). Matthew Roberts testified that he anticipated that the amount of money that flowed through this check cashing account would start out relatively small and grow as the Debtor’s business improved. MBC did not establish any set overdraft limit for the account, as MBC wanted the account to maintain a positive balance at all times.
On or about March 18, 1998, MBC opened a check cashing account under the fictitious name, “Jay Enterprise.” From that date until March 8, 1999, the Jay Enterprise account maintained a positive balance and MBC was unaware of any irregularities or problems with the account. As a result, until the account was identified as a potential problem on March 8, 1999, MBC did not review the individual checks that were deposited into the account to ensure that Jay Enterprise was complying with its obligations under the Check Cashing Agreement to refrain from depositing checks that were of high risk and to obtain California identification card or driver’s license numbers for all depositors, and the Bank did not exercise its right to refuse to аccept any checks for deposit that failed to comply with these requirements or to discontinue in whole or in part providing provisional credit for deposited checks and permitting immediate withdrawals of cash from the account. However, everything changed on March 8, 1999.
Matthew Roberts testified that, as the supervisor of the cash management services division of the bank, during this period, he received a report every morning concerning the bank’s check cashing accounts. This report reflected such information as the balance in each account and the amount of deposits and withdrawals from the account. Although the report reflected a positive balance for the Jay Enterprise account on the morning of March 8, 1998, as an extraordinarily high amount of items were returned insufficient funds that day,
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the situation changed.
From that point forward, MBC began inspecting all items deposited into the account and identified a number of checks that it considered to be of high risk (such as checks written to/being cashed by corporations and checks for amounts that were just slightly under $10,000). Although it considered a number of checks that were presented for deposit high risk, MBC ultimately deposited these items in the hope that some would clear and thereby reduce the amount of its overdraft. (MBC did not permit Jay Enterprises to withdraw additional cash in the corresponding amounts.) Matthew Roberts testified that, as a result of these later deposits, MBC succeeded in reducing its overdraft by approximately $800,000. As of March 31, 1999, the check cashing account of Jay Enterprise at MBC was overdrawn by more than $400,000.
Once it observed that the account was overdrawn, MBC applied the $15,000 certificate of deposit that it held as collateral and entered into discussions with the Debtor and Philip аs to how they planned to repay the amounts overdrawn. These discussions eventually led to the execution of a Forbearance Agreement in which the Debtor and Philip agreed to make payments over time in reduction of the bank’s loss. The Debtor’s obligations under the Forbearance Agreement were secured by a deed of trust on his residence. The Forbearance Agreement does not contain any releases of any of the bank’s rights as against the Debtor or Philip. To the contrary, paragraph 4 of the Forbearance Agreement states, in pertinent part, “Except as expressly modified by this Agreement, the Bank retains, without limitation, all remedies available to it by law.”
II
CONCLUSIONS OF LAW
Although the parties may disagree on certain of the details, the operative facts of this case are not in dispute. The Debtor admits that, with his knowledge and consent, he was held out to MBC as the owner of Jay Enterprise, even though he actually held nо ownership interest in the business. He admits further that his signature on the Financial Statement is authentic and that the Financial Statement contains material inaccuracies. The Debtor does not dispute that, when a bank opens a check cashing account and provides provisional credit to its depositor for checks that have not yet cleared the banks upon which they were drawn, the bank exposes itself to the very risks that led to the losses that occurred in the instant case. The Bank, for its part, has not disputed the Debtor’s contentions that he speaks little or no English and did not review the Financial Statement before he signed it. Moreover, MBC does not dispute that it could have, but did not, conduct more investigation into the Debtor’s financial condition prior to opening the Jay Enterprise check cashing account and that it might have prevented some or all of its losses if it had made a practice of reviewing the cheсks being deposited into the account before extending provisional credit and permitting cash withdrawals to be made from the account.
The parties do not agree, however, on the legal consequences that flow from the foregoing facts. The Debtor contends that MBC cannot establish the requisite degree of causation to state a claim for relief
A. Plaintiff’s Claims for Relief under Section 523(a)(2)(A)
In order to state a claim for relief under section 523(a)(2)(A), the plaintiff must establish by a preponderance of evidence
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that: (1) the debtor made a representation; (2) the debtor knew at the time the representation was false; (3) the debt- or made the representation with the intention or purpose of deceiving thе creditor;
Further, when fraud involves an intentional failure to disclose material fact, positive proof of reliance is unnecessary. All that is necessary is that the facts withheld be material in the sense that a reasonable investigator might have considered them important in making his decision. The existence of an obligation to disclose and the withholding of material fact are enough to establish the element of causation. Nondisclosure of material fact in the face of a duty tо disclose has been held to establish the requisite rebanee and causation for actual fraud under the Bankruptcy Code.
In re Tallant,
MBC has established ah of the elements necessary to state a claim for rebef under this section. The Debtor knowingly permitted himself to be held out to MBC as the owner of Jay Enterprise, even though he was not the owner of the business. He knew that his brother planned to represent to the bank that the Debtor, and not Phbip, was the owner of the business, and the Debtor authorized him to do so. The Debtor signed and debvered, either directly to the bank or to Philip for the bank’s use, the documents necessary to accomplish the deception. The Debtor understood that it was necessary for him to pretend to be the owner of the business because he had a better credit rating and was more creditworthy than Phibp. He intended to induce MBC to bebeve falsely that he was the owner of the business. Although MBC might have discovered by hiring a translator and carefully questioning the Debtor that he was merely lending his name to his brother’s business and that he would not have any actual ownership interest in the business, MBC was not required to do so. And a mere failure to discover true information, even if negligent, is no defense to fraud.
As the opening of a check cashing account is inherently risky, particularly where the depositor is a new business with no prior operating history, the character, credit history and creditworthiness of the prospective account holder are critical factors for the bank to assess in deciding whether or not to open the account. Matthew Roberts testified that MBC evaluated and relied on the Debtor’s credit history and creditworthiness in making its decision to open this account, and the facts adduced at trial demonstrate that, but for the opening of this account, MBC would not have sustained the losses that gave rise to this action. Thus, MBC has made the showing necessary to obtain judgment under this sеction.
B. Plaintiffs Claims for Relief under Section 528(a)(2)(B)
The Debtor’s liability to MBC is nondischargeable under section 523(a)(2)(B) as web. The elements necessary to state a claim for rebef under this section are the same as those necessary to establish a claim under section 523(a)(2)(A), except that the false statement or statements must be in writing and must relate to the debtor’s financial condi
The Debtor does not dispute that the Financial Statement contained false information, including bank deposits that did not belong to the Debtor, income that thе Debtor and his wife did not earn, 15 an armored vehicle that the Debtor did not own, and so on. The Debtor does not dispute that these misrepresentations were material and that MBC relied on this false information (other than information concerning his income) in deciding to open a check cashing account for Jay Enterprise. However, the Debtor does (or may) dispute that (1) MBC’s reliance was reasonable, (2) the Debtor was the one who made the false representations to MBC, (3) the Debtor knew the representations were false at the time they were made and/or (4) MBC’s damage was proximately caused by its reliance on these representations (rather than by the check kiting scheme run by Philip).
The Debtor’s first argument fails as a defense to a claim brought under section 523(a)(2)(B) for the same reason that it failed as a defense to liability under section 523(a)(2)(A). The fact that MBC, if it so desired, might have performed a more thorough investigation or might havе independently attempted to verify some or all of the information contained on the Financial Statement, and did not do so, does not give rise to a defense: “Lenders do not have to hire detectives before relying on borrower’s financial statements. ...”
In re Gertsch,
The fourth defense raised by the Debtor may be summarily dismissed as well. MBC testified, and the Debtor concedes, that opening a check cashing account is inherently risky, in that it subjects a bank to the risk that it will suffer a loss of exactly the kind that MBC suffered in this case, namely, that it will advance credit to the account holder for checks that subsequently fail to clear. But for the opening of the Jay Enterprise check cashing account, MBC would not have suffered this loss. Although MBC might have prevented this loss by carefully reviewing each check submitted for deposit before granting a provisional credit and permitting a cash withdrawal, MBC testified that it was not its practice to do this unless and until there were problems with a given account — which was not the case with re
This point is well illustrated by the Eleventh Circuit’s holding in
Collins v. Palm Beach Savings & Loan (In re Collins),
Although Palm Beach could have prevented its own injury by perfecting its interest in Collins’s collaterаl property, the Bankruptcy Code does not require such diligence on the part of a creditor induced by fraudulent means in extending credit to a debtor.... If Collins had not made the false representations as to the status of his collateral property, Palm Beach would not have loaned Collins $150,000. Therefore, we find no error in the bankruptcy court’s finding that Collins’s false statements were the proximate cause of Palm Beach’s harm.
Collins,
The two remaining defenses advanced by the Debtor are equally unavailing. Matthew Roberts testified that the Debtor signed the Financial Statement in his presence and gave it to him. The Debtor testified that, although he did not really know what he was signing, he signed both his name and that of his wife to the second to last page of the Financial Statement and that the purpose of his visit to the bank was to sign the documents that the bank wanted in connection with the opening of the Jay Enterprise account. Even if the Debtor had signed the Financial Statement in the privacy of his own home and had given it to his brother, because he knew that the intended recipient of the Financial Statement was the bank officer that would be evaluating whether or not to open the check cashing account, the Debtor can be charged with having made the representations contained on the Financial Statement.
In deciding whether a statement was made with the requisite level of recklessness, courts have examined such factors as whether the debtor could reasonably have been expected to have had access to the financial information contained on the statement and whether the debtor reasonably relied on the advice or services of an accounting professional in including the inaccurate information. In the
Aste
case, for example, the Court held that the required showing had not been made where (1) the financial statement in question was that of a corporation for which the debtor worked, (2) the debtor was not actively involved in the finances of the company and (3) there was nothing on the face of the financial stаtement that should have alerted him to its falsity. In light of these factors, the Court in
Aste
held that it was not reckless of the debtor to have relied on the accuracy of the financial information supplied by another corporate employee who had access to such information in signing the financial statement.
See also Ohio Casualty Ins. Co. v. Smith,
On the other hand, when the debtor was in a position to have access to the financial information reflected on the statement and did little or nothing to review the financial statement before signing it to ensure its accuracy, or the debtor had reason to question the accuracy of the information contained in the statement, but failed to do so, courts have found the requisite level of recklessness. In
Foote & Davies v. Albanese (In re Albanese),
The Bankruptcy Appellate Panel’s decision in
In re Coughlin,
In the instant case, although the Debtor testified that he spoke little or no English, he had no difficulty at trial in deciphering numbers that appeared on the financial statement and could not have resided in the United States for as long as he has, obtained loans on his own or anyone else’s behalf, made mortgage payments on his home, filed tax returns and the like without being able to recognize and understand the significance of the dollar figures that appeared on the Financial Statement. Although he might not have understоod the accompanying text, he does understand the concept of a financial statement and did understand that a document concerning his financial condition was being prepared and submitted to the bank. If he had even glanced at page 3 of the Financial Statement, he would have noticed that it reflected a number of dollar values that did not correspond to anything that he owned and in one or more instances looked remarkably similar to the balances shown on the California Union College bank statements that he had given to Philip.
Moreover, the Debtor’s testimony concerning his discussions with his brother
C. Plaintiff’s Claims for Relief under Section 523(a)(6)
In order to impose liability under section 528(a)(6), the Court must find a “deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.”
Kawaauhau v. Geiger,
Stated differently, a debtor must either subjectively want to cause the injuries that the plaintiff suffered or subjectively believe that such injuries are substantially certain to result from his conduct.
Petralia v. Jercich (In re Jercich),
The Debtor testified that he did not know how Philip’s check cashing business had been doing while it maintained an account at First Global Bank, but that he assumed it had been doing well, as he had never heard to the contrary. He also testified that Philip had been making the monthly payments due on the loan that the Debtor had obtained on his behalf from First Global Bank. Nothing in the evidence presented at trial suggests that the Debtor had reason to know that Philip would participate in a check kiting scheme, leaving him to answer to the bank for the amount of the resulting overdraft. Nothing in the record establishes that the Debtor had reason to know that, if MBC opened a check cashing account for Jay Enterprise, MBC would be substantially certain to suffer injury. As far as the Debtor knew, Philip had not had any problems with his check cashing business in the past and wanted to move his account to MBC merely to save on bank fees and charges. Having made himself personally liable for the obligations of Philip’s business, the Debtor had every reason to wish and hope that Philip’s business went well and that the relationship between MBC and Jay Enterprise proved mutually beneficial. Thus, MBC’s claim for relief under section 523(a)(6) must fail.
Notes
. Although MBC's original complaint does not make reference to 11 U.S.C. § 523(а)(2)(A) the parties’ joint pretrial order entered February 22, 2002, (the “Pretrial Or
. Pursuant to this Court's April 11, 2002 "Order Granting Motion for Provisional Relief from Discharge Injunction,” this Memorandum adjudicates only whether any deficiency that may remain after MBC has applied its collateral in satisfaction of the Debtor’s obligations is dischargeable in bankruptcy. It does not adjudicate the amount of any such deficiency. That amount has been or will be adjudicated in a separate action that MBC commenced in state court.
. In the Pretrial Order, the Debtor neither admits nor denies that he is the owner of the business known as "Jay Enterprise." In the Debtor's post-trial brief, in an apparent effort to defeat MBC’s claim for relief under section 523(a)(2)(A) by demonstrating that representations concerning ownership of the business were true, counsel for the Debtor asserts that the Debtor was indeed the owner оf this business. See Defendant’s Post-Trial Brief, p. 6 at lines 1-2. However, based on the Debtor's testimony on this issue, the Court finds that Jay Enterprise was not in fact a sole proprietorship owned by the Debtor. The Debtor signed the document necessary to register the fictitious name, "Jay Enterprise,” for his use in connection with the operation of a sole proprietorship and became personally liable for the company’s overdrafts at MBC by signing a Check Cashing Account Agreement, but he did not use this name to operate a sole proprietorship. His brother did. The Debtor did not maintain any of the typical indicia of ownership for a business. The Debtor did not receive any income or profits generated by the business. The Debtor did not have decision-making authority of any kind over any aspect of the business. The business was owned in all senses of the word by the Debt- or’s brother.
. The Debtor testified at trial through a translator.
. The term, "check cashing account,” as used in this Memorandum refers to a business account maintained by a check сashing business for the purpose of depositing and cashing checks that the business obtains from its customers.
. Page 4 of the Financial Statement bears two signatures, one of which is that of the Debtor, the other of which purports to be that of the Debtor's wife. The Debtor testified at trial, however, that he signed both his own name and that of his wife in front of the bank officer and that he was told that it was permissible for him to do so.
.Although MBC designated Daniel Roberts as one of its witness in the Pretrial Order and filed direct and reply declarations that set forth his testimony, Daniel Roberts did not attend the trial and was not available for cross-examination at that time. Accordingly, the Court did not permit MBC to introduce his declarations into evidence at trial. Nevertheless, his deposition testimony was admitted into evidence at the request of the Debtor as an admission of a party opponent.
. None of the handwritten changes materially affected the items on the Financial Statеment that the plaintiff alleges are inaccurate.
. Initially, the Debtor testified at trial that the $68,000 was the remainder of the funds that he had borrowed from First Global Bank and lent to his brother and that these funds belonged to Philip. However, at his 341(a) meeting, the Debtor testified that these were funds that belonged to his employer, California Union College.
.The term, "Isaac score,” refers to a score assigned in accordance with mathematical formulae developed by Fair Isaac and Company in an effort to predict the likelihood that a given borrower will repay credit extended. The higher the score, the lower the credit risk. These formulae take into account such factors as payment history, amount owed to various creditors, the length of the borrower’s credit history, the amount of new credit extended to the borrower and the types of credit currently in use by the borrower.
. MBC contends, and the Debtor does not dispute, that, at some point in early 1999, Philip Oh began using the Jay Enterprise check cashing account at MBC to operate a
. In its pretrial brief, MBC made clear that it did not intend to proceed against the Debt- or on the theory that he and Philip were partners and, therefore, that Philip’s actions should be imputed to the Debtor. Accordingly, the Court does not decide whether MBC has made the showing necessary to warrant such an imputation.
. Initially, the Debtor asserted two additional defenses, but these appear to have been abandoned during the course of trial. To the extent that these defenses were not abandoned, they are hereby rejected. The first such defense was based on the Forbearance Agreement, but was never articulated in a way that either the Court or MBC could follоw. The Forbearance Agreement does not contain releases of any kind. Thus, the Debt- or did not argue that this agreement was a new transaction, or a novation, in which the bank waived the right to prosecute claims arising out of the prior sequence of events. If the Debtor’s contention here is that MBC made the relevant credit decision at the time that it entered into the Forbearance Agreement, rather than at the time it opened the check cashing account, and that the Debtor did not make any false representations to the bank in connection with the execution of the Forbearance Agreement, the Debtor misstates the operative facts. Credit had already been extended to the Debtor based on false representations at the time the Forbearance Agreement was signed. Any steps that MBC may have taken thereafter in an effort to mitigate its losses have no impact on the viability of any claim for relief that it may have had against the Debtor for acts that had already occurred.
The second such defense was based on a theory of judicial estoppel. Here, the Debtor initially argued that, because MBC relied on certain facts in connection with its (successful) efforts to obtain summary judgment against the Debtor and his brother in its state court action, MBC was judicially estopped from pleading and proving contrary facts in the instant lawsuit. However, the Debtor never identified any contrary or inconsistent facts asserted by MBC in its state court action that MBC should be estopped to deny in this action. The bank does not dispute that Philip ran Jay Enterprise or that he was responsible for the check kiting scheme that led the Jay Enterprise account to become overdrawn, and these are not the facts upon which the Court’s decision is based.
. Grogan v. Garner,
. The Court is not relying on the falsity of this particular piece of information in finding for MBC on its claim for relief under section 523(a)(2)(B), however, as Matthew Roberts testified that the bank was aware that this information was inaccurate at the time it decided to open the account.