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In re: James C. Stephens, Chapter 11, Debtor. DJDL Holdings, L. L. C Plaintiff, v. James C. Stephens, Defendant.
In re: James C. Stephens, Chapter 11, Debtor. DJDL Holdings, L. L. C Plaintiff, v. James C. Stephens, Defendant.Case No. 09-29970-svk.
Case No. 09-29970-svk.Ad v. No. 09-2372.
Ad v. No. 09-2372.United States Bankruptcy Court, E. D. Wisconsin.
United States Bankruptcy Court, E. D. Wisconsin.March 30, 2010.
March 30, 2010.DECISION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
DECISION AND ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENTSUSAN V. KELLEY, Bankruptcy Judge
This is a nondischargeability action under Bankruptcy Code § 523(a)(2)(A) and (B), in which DJDL Holdings, L. L. C. ("DJDL") claims that the Debtor, James C. Stephens (the "Debtor") defrauded DJDL and presented a false financial statement in connection with a loan transaction. The Debtor filed a Motion for Summary Judgment, claiming that DJDL could not prevail on either claim. On March 23, 2010, at the hearing on the Debtor's Motion, the Court denied Summary Judgment as to the § 523(a)(2)(A) (fraud) claim finding disputed material facts, and took the § 523(a)(2)(B) (false financial statement) claim under advisement.
Section 523(a)(2)(B) excepts from discharge any debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by:
(B) use of a statement in writing—
(i) that is materially false;
(ii) respecting the debtor's or an insider's financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive.
In support of its claim, DJDL alleges that, in connection with an October 1, 2008 extension of a prior loan, the Debtor produced a financial statement that contained several substantial misrepresentations. The Debtor disputes that any information contained in the financial statement was false, but argues that even if it was, DJDL in no way "reasonably relied" on that information because the loan extension, guaranty and financial statement were all executed contemporaneously. DJDL disputes this fact, contending that e-mails prior to the closing also
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misstated the Debtor's financial condition. The Debtor's main argument is that because the October 1, 2008 loan extension did not involve "new money, " DJDL cannot prove that DJDL suffered actual damages because of the financial statement.
DJDL counters that its forbearance fit within the scope of § 523(a)(2)(B), even though DJDL did not advance new money at the time the financial statement was presented. Whether forbearance can constitute an "extension or renewal" was precisely the issue the Court took under advisement after the hearing on March 23, 2010. This proved fortuitous, because on March 25, 2010, the Seventh Circuit Court of Appeals, in a matter of first impression, answered the question:
We have not yet had occasion to determine whether a fraudulently induced forbearance constitutes an extension or renewal of credit for purposes of § 523. We now hold that a fraudulently induced forbearance does constitute an extension or renewal. Black's Law Dictionary defines an "extension" as "the continuation of the same contract for a specified period, " or "a period of additional time to take an action, make a decision, accept an offer, or complete a task. " Black's Law Dictionary 622 (8th ed. 2004). It defines a "renewal" as "the re-creation of a legal relationship or the replacement of an old contract with a new contract, as opposed to the mere extension of a previous relationship or contract. " Id. at 1322. We think it is abundantly clear that a fraudulently induced forbearance fits squarely within these definitions, and note that other circuits have reached the same conclusion. See In re Biondo, 180 F. 3d 126, 132-33 (4th Cir. 1999); In re Campbell, 159 F. 3d 963, 966 (6th Cir. 1998); Field v. Mans, 157 F. 3d 35, 43 (1st Cir. 1998); In re Gerlach, 897 F.2d 1048 1050 (10th Cir. 1990).
Ojeda v. Goldberg, 2010 U.S. App. LEXIS 6193, at *15 (7th Cir. March 25, 2010) (emphasis added). The Court of Appeals also recognized that "a forbearance could be considered an extension, renewal, or both, depending on the circumstances of a given case, " and therefore made no determination as to which category of claim a fraudulently induced forbearance best fits. Id.
Having determined that a forbearance can constitute an extension or renewal under 11 U.S.C. § 523(a)(2), and it appearing that the other elements of the claim, such as reasonable reliance, are subject to material dispute, Summary Judgment is not appropriate in this case. Therefore, the Debtor's Motion for Summary Judgment is denied.
IT IS SO ORDERED.
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