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Scheideler v. Berken

United States District Court, D. Colorado

August 3, 2017




         On September 13, 2016, appellant/defendant Joseph Scheideler (“appellant”) appealed the decision of the U.S. Bankruptcy Court for the District of Colorado (“the Bankruptcy Court”), granting appellee/plaintiff Stephen Berken's (“appellee”) Motion for Summary Judgment (“appellee's motion for summary judgment”). (ECF No. 2.) In his Opening Brief, appellant raised the following issues for judicial review: (1) whether the Bankruptcy Court erred in granting appellee's motion for summary judgment because appellant did not cause appellee's damages because he did not obtain money, property, services, or an extension, renewal, or refinancing of credit to the extent obtained by false pretenses, a false representation, or actual fraud from appellee; and (2) whether appellee was entitled to summary judgment when he did not rely on any statements allegedly made to him by appellant. (ECF No. 11 at 4.)[1] Appellee has filed a Corrected Response Brief (ECF No. 13), and appellant has filed a Reply Brief (ECF No. 15).

         With this matter now being fully briefed, and for the reasons discussed herein, this Court REVERSES the decision of the Bankruptcy Court, and DENIES appellee's motion for summary judgment.

         I. Background

         On July 13, 2015, appellant filed a petition for relief under Chapter 13 of the U.S. Bankruptcy Code. (ECF No. 10-1 at 6.) During the time period relevant to this case, appellant was an attorney. (Id. at 88, 96.) On October 26, 2015, appellee initiated an adversary proceeding against appellant. (Id. at 1.) Pursuant to appellee's Complaint, appellee sought to have a debt excepted, pursuant to 11 U.S.C. § 523(a)(2)(A) (“§ 523(a)(2)(A)”), from any order of discharge entered in appellant's underlying bankruptcy proceeding. (Id. at 5.) That debt is in the amount of $11, 556.50, and appellee alleged that it stemmed from appellee's prosecution of a motion to disqualify appellant from representing a creditor in another bankruptcy case. (Id. at 6.)

         On August 2, 2016, appellee filed his motion for summary judgment. (ECF No. 10-1 at 139-145.) Therein, appellee asserted, inter alia, the following. In a different bankruptcy case, a bankruptcy judge held a telephonic hearing. (Id. at 140.) During the telephonic hearing, “a male voice” presented the legal argument of a party represented by appellant. Appellee, who appeared in-person at the hearing, listened to the voice, and did not think it was appellant's voice. After the voice concluded speaking, appellee “queried the person on the telephone as to his identity, ” and, after a short pause, a different voice said “I'm speaking … Joe Scheideler.” (Id.) Appellee remained suspicious that someone other than appellant had spoken during the hearing, and decided to hire a professional audio engineer to perform a forensic analysis of an audio recording of the hearing. (Id. at 141.) After doing so, the engineer concluded that appellant had not made the pertinent legal argument during the hearing. Appellee then filed a motion to disqualify appellant from further involvement in the pertinent bankruptcy case. Thereafter, appellant stipulated to the fact that he had not made the pertinent legal argument during the hearing and that another person had attempted to impersonate him.[2] (Id.) A bankruptcy judge subsequently held appellant in contempt for his conduct during the telephonic hearing. (Id. at 141-142.) The bankruptcy judge also subsequently ordered appellant to pay appellee $11, 556.50. (Id. at 142.)

         On August 22, 2016, appellant responded to appellee's motion for summary judgment, and also moved for summary judgment in his favor. (ECF No. 10-1 at 156-158.) On September 6, 2016, the Bankruptcy Court entered an Order on Cross-Motions for Summary Judgment (“the Bankruptcy Court Order”), granting appellee's motion for summary judgment, and denying appellant's cross-motion for summary judgment. (Id. at 172-178.) The Bankruptcy Court adopted the factual statements made in appellee's motion for summary judgment because appellant did not identify any of the same as subject to dispute. (Id. at 172-174.)

         The Bankruptcy Court then concluded the following. First, it was “clear enough” that appellant committed a fraudulent act in that he tried to deceive the bankruptcy judge for the pertinent bankruptcy case. (Id. at 175.) Second, it was “clearly established” that appellant committed an “actual” fraud, as appellant had claimed falsely that he had made legal argument before the bankruptcy judge, and thus, “the inference that [appellant's] false statement to the court was made with the intent to deceive the court is inescapable.” (Id.) Third, it was no bar to appellee's recovery that appellant did not obtain money, property, services, or an extension, renewal, or refinancing of credit. (Id. at 175-176.) Fourth, appellee was the “direct target” of appellant's fraudulent act because appellant's misrepresentation was not only made to the bankruptcy judge, but also made to appellee “in direct response to his question concerning the identity of the individual who was presenting argument to the court at the hearing.” (Id. at 176.) Fifth, in the absence of appellant's fraudulent act, appellee would not have incurred the expense of hiring an expert to investigate appellee's suspicions, and thus, that expense was a direct result of appellant's act. (Id. at 177.)

         II. Legal Standards

         The Bankruptcy Court's grant of summary judgment, including any purported factual findings, is reviewed de novo. In re C.W. Mining Co., 798 F.3d 983, 986 & n.2 (10th Cir.2015). Summary judgment is appropriate “when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Fed.R.Bankr.P. 7056 (making Fed.R.Civ.P. 56 applicable in adversary proceedings). A fact is material if it has the potential to affect the outcome of a dispute under applicable law. Ulissey v. Shvartsman, 61 F.3d 805, 808 (10th Cir. 1995). An issue is genuine if a rational trier of fact could find for the non-moving party. Adams v. Am. Guarantee & Liab. Ins. Co., 233 F.3d 1242, 1246 (10th Cir. 2000). In performing this analysis, the factual record and any reasonable inferences therefrom are construed in the light most favorable to the non-moving party. Id.

         III. Discussion

         Both parties cite to the same Tenth Circuit Court of Appeals case for purposes of explaining the elements of a false representation or actual fraud under § 523(a)(2)(A).[3] That case is In re Young, 91 F.3d 1367 (10th Cir. 1996). (See ECF No. 11 at 10; ECF No. 13 at 8.) The Court will get to In re Young in one moment. Before doing so, it is important to note that appellee does (perhaps unintentionally) throw some uncertainty over the test used in In re Young, even though appellee cites to that decision as “seminal.” Notably, appellee cites to the Supreme Court's 2016 decision in Husky Int'l Electronics, Inc. v. Ritz, 578 U.S., 136 S.Ct. 1581 (2016). Appellee asserts that, in Husky, the Supreme Court explained that “actual fraud, ” for purposes of § 523(a)(2)(A), means any fraud done with wrongful intent. (See ECF No. 13 at 8-10, 13.) Although appellee does not attempt in any way to explain how Husky might affect the test used in In re Young, appellee then asserts that the ruling in Husky means that “the formerly narrow reading of § 523(a)(2) need not be limited to a showing a Debtor need have a prior creditor/debtor relationship in order to find ‘actual fraud.'” (Id. at 13.) Whether In re Young is an example of the “formerly narrow reading of § 523(a)(2)” is left conveniently unstated. In other words, perhaps understandably, although appellee very much implies it, appellee appears reluctant to state that In re Young, at least in part, has been overruled.

         As this Court reads Husky, to the extent In re Young suggests that one test applies to all claims brought under § 523(a)(2)(A), Husky very much puts such a suggestion on troubled legal grounds. That is largely because Husky said as much. Notably, the Supreme Court concluded that, because Congress amended § 523(a)(2)(A) by adding the language “actual fraud, ” “[i]t is therefore sensible to start with the presumption that Congress did not intend ‘actual fraud' to mean the same thing as ‘a false representation, ' as the Fifth Circuit's holding suggests.” Husky, 136 S.Ct. at 1586.

         That being said, it is unnecessary for this Court to delve too deeply into the ramifications of Husky for this case. That is because Husky undoubtedly involved the “actual fraud” part of § 523(a)(2)(A). See Husky, 136 S.Ct. at 1585-86. This case, however, does not. Appellee's Complaint sets forth one claim for relief. (ECF No. 10-1 at 11-12.) That claim, brought under § 523(a)(2)(A), is premised exclusively upon appellant having allegedly made a “false representation.” (See id.) Notably, appellee alleged that its debt was “incurred through the use of making a false representation to the bankruptcy court, ” that appellant's “false representation was made at a time [appellant] knew it was false, ” that appellant's “false ...

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