Phoenix Equity Ventures, LLC v. Baillio

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
TROY MICHAEL BAILLIO and
JASMINE BAILLIO,
Debtors. 	No. 7-08-12171 JA
PHOENIX EQUITY VENTURES, LLC,
Plaintiff,
v. 	Adv. No. 08-1124 S
TROY MICHAEL BAILLIO,
Defendant.
MEMORANDUM OPINION ON DEFENDANT’S
MOTION FOR RULE 52(c) DISMISSAL
This matter came before the Court for trial on the merits of
Plaintiff’s Complaint. 	At the conclusion of Plaintiff’s case,
Defendant orally moved for dismissal, which the Court took under
advisement. 	Defendant’s motion will be granted.
Plaintiff appeared through its attorney Hunt & Davis, P.C.
(Chris W. Pierce). 	Defendant appeared through his attorney
Moore, Berkson & Gandarilla, P.C. (George M. Moore). 	This is a
core proceeding to determine dischargeability of a debt. 	28
U.S.C. § 157(b)(2)(I). 	This Memorandum Opinion constitutes the
Court’s Findings of Fact and Conclusions of Law as may be
required by Bankruptcy Rule 7052(a).
Plaintiff’s complaint is based on 11 U.S.C. § 523(a)(2)(A)
and (B), which provide:
(a) A discharge under section 727, 1141, 1228(a),
1228(b), or 1328(b) of this title does not discharge an
individual debtor from any debt--
(1)...
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(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;[or]
(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[.]
Defendant’s motion implicates Bankruptcy Rule 7052, which
incorporates Fed.R.Civ.P. 52(c). 	Rule 52(c) provides:
Judgment on Partial Findings. 	If a party has been
fully heard on an issue during a nonjury trial and the
court finds against the party on that issue, the court
may enter judgment against the party on a claim or
defense that, under the controlling law, can be
maintained or defeated only with a favorable finding on
that issue. 	The court may, however, decline to render
any judgment until the close of the evidence. 	A
judgment on partial findings must be supported by
findings of fact and conclusions of law as required by
Rule 52(a).
A Rule 52(c) motion should be granted either 1) if plaintiff
fails to make out a prima facie case, or 2) despite a prima facie
case, the Court determines that the preponderance of evidence
goes against the plaintiff’s claim. 	Regency Holdings (Cayman),
Inc. v. The Microcap Fund, Inc. (In re Regency Holdings (Cayman),
Inc.), 216 B.R. 371, 374 (Bankr. S.D. 	N.Y. 1998)(Citation
omitted.) 	The Court does not draw any special inferences in
nonmovant’s favor, nor does the court consider the evidence in
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the light most favorable to the nonmoving party. 	Id. 	(Citations
omitted.) 	Rather, the court acts as both judge and jury, weighs
evidence, resolves conflicts, and decides where the preponderance
of the evidence lies. 	Id. (Citations omitted.) 	See also Follett
Higher Education Group, Inc. v. Berman (In re Berman), 427 B.R.
432, 434 n. 1 (N.D. Ill. 2010)(same).
INTRODUCTION
In general, after an individual debtor files for
chapter 7 bankruptcy, the bankruptcy court discharges
all of the debtor's pre-existing obligations, absent
the applicability of a statutory exception. 	See 11
U.S.C. § 523(a) 	(identifying nineteen statutory
exceptions to discharge). 	Because exceptions to
discharge are narrowly construed in favor of the debtor
in an effort to further the “fresh start” policy
underlying the Bankruptcy Code, the creditor asserting
an exception to discharge must show that its claim
“comes squarely within an exception enumerated in
Bankruptcy Code § 523(a).” 	See Century 21 Balfour Real
Estate v. Menna (In re Menna), 16 F.3d [7] at 9 [(1st
Cir. 1994)]; see also McCrory v. Spigel (In re Spigel),
260 F.3d 27, 32 (1st Cir.2001); Palmacci [v. Umpierrez
(In re Umpierrez)], 121 F.3d [781] at 786 [(1st Cir.
1997)].
Pursuant to § 523(a)(2), some debts incurred as a
result of the debtor's fraudulent actions or statements
are excepted from discharge. 	See 11 U.S.C. §
523(a)(2). 	Specifically, § 523(a)(2)(A) excepts from
discharge debts obtained by “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). 	Section
523(a)(2)(B), on the other hand, bars the discharge of
a debt obligation obtained by a false written statement
“respecting the debtor's ... financial condition.” 	See
11 U.S.C. § 523(a)(2)(B). 	Based on this statutory
language, discharge claims based on fraudulent written
statements concerning a debtor's financial condition
must be brought pursuant to § 523(a)(2)(B), not §
523(a)(2)(A). In addition: These two subsections of §
523(a) were enacted to address distinct factual
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1The United States Supreme Court ruled that for section
523(a)(2)(A) the reliance must only be “justifiable.” 	Field, 516
U.S. at 74-75.
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situations.... [T]hey [also] differ with respect to the
element of reliance-that is, the extent to which the
creditor altered its position because of the debtor's
misrepresentations. 	Whereas subsection (2)(A) requires
the creditor to prove “justifiable reliance,”
subsection (2)(B) mandates the more demanding showing
of “reasonable reliance.” 	Colombo Bank v. Sharp (In re
Sharp), No. 08-1646, 340 Fed.Appx. 899, 2009 U.S.App.
LEXIS 18200 (4th Cir. Aug. 14, 2009) (citing Field [v.
Mans], 516 U.S. [59] at 66, 116 S.Ct. 437 [1995]).
Douglas v. Kosinski (In re Kosinski), 424 B.R. 599, 607-08 (1st
Cir. BAP 2010) (footnote omitted). 	See also Larazon v. Lucas (In
re Lucas), 386 B.R. 332, 336 n. 5 (Bankr. D. N.M.
2008)(emphasizing fact that sections 523(a)(2)(A) and
523(a)(2)(B) are mutually exclusive.)
To establish that a claim is non-dischargeable under section
523(a)(2)(A) the creditor must prove the following by a
preponderance of the evidence: (1) the debtor made a false
representation; (2) the debtor made the representation with the
intent to deceive the creditor; (3) the creditor relied on the
representation; (4) the creditor’s reliance was reasonable 1; and
(5) the debtor’s representation caused the creditor to sustain a
loss. 	Fowler Bros. v. Young (In re Young), 91 F.3d 1367, 1373
(10th Cir. 1996).
To establish that a claim is non-dischargeable under section
523(a)(2)(B) the creditor must prove the following by a
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2The Tenth Circuit construes the phrase “financial
condition” strictly and limits it to only those statements that
present an overall picture of the debtor’s financial condition,
purports to state the debtor’s overall net worth, overall
financial health, or overall ability to generate income, or a
statement that provides an equation of assets and liabilities.
Lazaron v. Lucas (In re Lucas), 386 B.R. 332, 336 (Bankr. D. N.M.
2008)(citing In re Joelson, 427 F.3d 700 (10th Cir. 2005), cert.
denied, 547 U.S. 1163 (2006)).
3 For the sake of completeness and continuity, the Court has
also included certain findings in this part of the memorandum
opinion based on the testimony of Mr. Douglas McKinnon.
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preponderance of the evidence: (1) the debtor made a statement in
writing; (2) the statement concerned the debtor's or an insider's
financial condition 2; (3) the statement was materially false;
(4) the creditor actually and reasonably relied on this false
statement; and (5) the debtor made the false statement with the
intent to deceive the creditor. 	Kosinski, 424 B.R. at 608.
FACTS
FACTS ADMITTED IN ANSWER3
1. 	Plaintiff is a New Mexico Limited Liability Company with its
primary place of business being located in Bernalillo County, New
Mexico. (Admitted in Defendant's Answer, paragraph 1).
2. 	Defendant Troy M. Baillio is a resident of Bernalillo County,
New Mexico. (Admitted in Defendant's Answer, paragraph 1).
3. 	JTS/Simms, LLC, Debtor in Case No. 07-07-12153 SA, is a New
Mexico Limited Liability Company ("JTS Simms") with its primary
place of business being located in Bernalillo County, New Mexico.
New Mexico. 	(Admitted in Defendant's Answer, paragraph 1).
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4. 	JTS Properties and Investments, LLC is a New Mexico Limited
Liability Company ( "JTS Properties") with its primary place of
business being located in Bernalillo County, New Mexico. New
Mexico. 	(Admitted in Defendant's Answer, paragraph 1).
5. 	The Court has jurisdiction over the subject matter herein and
the parties to this action. This action is a core proceeding
under 28 U.S.C. §1334 and 28 U.S.C. §157(b)(2)(I). 	Venue is
proper in this Court. 	(Admitted in Defendant's Answer, paragraph
1).
6. 	JTS Simms owned the real Property located at 400 Gold S.W. in
Albuquerque, NM, commonly known as the Simms Building ( the
"Simms Building" or the "Property"). 	(Admitted in Defendant's
Answer, paragraph 1).
7. 	JTS Simms financed the purchase of the Simms Building by
entering into short-term bridge financing with Silar Special
Opportunities Fund, L.P. ("Silar"). 	(Admitted in Defendant's
Answer, paragraph 1).
8. 	Troy Baillio was the Managing Member of JTS Simms. 	In June
of 2007, Troy Baillio and JTS Simms were in need of a significant
loan or infusion of cash in order to make payment on the
obligation to Silar. 	At some point, Troy Baillio came into
contact with, among others, Art Silva ("Silva"), in an attempt to
locate lenders. 	(Admitted in Defendant's Answer, paragraph 2,
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except that Art Silva found Defendant rather than Defendant
contacting Art Silva).
9. 	Plaintiff and Defendant Baillio agreed the Plaintiff would
loan Defendant Baillio or "the Simms Building" $250,000.00 for 30
days, at which time Defendants would repay the loan plus
$75,000.00 for a total payment of $325,000.00. 	(Admitted in
Defendant's Answer, paragraph 4).
10. 	On Saturday morning, June 23rd 2007, Timothy D. Steider,
Douglas H. McKinnon and G. Luke McKinnon, who are the three
members of the Plaintiff LLC, met with Defendant Baillio at
Plaintiff’s office. 	(Admitted in Defendant's Answer, paragraph
7).
11. 	Troy M. Baillio, as President of JTS Properties and
Investments, LLC, signed the Promissory Note dated June 23, 2007
(the “Note” or “Promissory Note”), a true and correct copy of
which was attached as Exhibit 1 to the complaint. 	(Admitted in
Defendant's Answer, paragraph 10).
12. 	Troy M. Baillio, as Member of JTS/Simms, LLC and G. Luke
McKinnon, as Member of Phoenix Equity Ventures, LLC, signed the
Agreement dated June 23, 2007 (the “Agreement”), a true and
correct copy of which was attached as Exhibit 2 to the complaint.
(Admitted in Defendant's Answer, paragraph 10).
13. 	Troy M. Baillio, as member of JTS/Simms, LLC, a New Mexico
Limited Liability Company, signed the Warranty Deed dated June
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23, 2007 (the “Warranty Deed”), a true and correct copy of which
was attached as Exhibit 3 to the complaint. 	(Admitted in
Defendant's Answer, paragraph 10).
14. 	Troy M. Baillio, as Member/President of JTS Properties and
Investments, LLC, and Douglas H. McKinnon, as Member of Phoenix
Equity Ventures, LLC signed the Extension Agreement dated July
23, 2007 (the “Extension Agreement”), a true and correct copy of
which was attached as Exhibit 4 to the First Amended Complaint.
(Admitted in Defendant's Answer, paragraph 10).
15. 	Pursuant to the Agreement, the Warranty Deed was placed in
escrow at Sunwest Trust, Inc. 	(Admitted in Defendant's Answer,
paragraph 11) (remainder of paragraph denied).
16. 	On June 23, 2007, pursuant to the terms of the Promissory
Note, the Agreement and the Warranty Deed, Plaintiff Phoenix
Equity Ventures, LLC delivered to Troy Baillio a check in the
amount of $100,000, made payable to “**U.S. Title** **FOR
JTS,/Simms, LLC**.” 	(Admitted in Defendant's Answer, paragraph
12).
17. 	On June 29, 2007, Plaintiff delivered a check for
$150,000.00 made out to JTS Simms. 	(Testimony of Douglas
McKinnon.)
18. 	At approximately, 5:13 PM on July 23, 2007, Plaintiff sent a
proposed Extension Agreement (Plaintiff’s Trial Exhibit 4), to
Defendant, via facsimile. 	(Admitted in Defendant's Answer,
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paragraph 21). 	The Extension Agreement sought to extend the
deadline for repayment by an additional 46 (forty six) hours.
19. 	In return for the approval of the additional 46 hours,
Plaintiff demanded an additional $30,000.00 to be repaid, which
Defendant agreed to. 	(Testimony of Douglas McKinnon.)
20. 	Neither Troy Baillio, JTS Properties and Investments, LLC,
nor anyone on their behalf, have ever repaid any of the
$250,000.00 received from Phoenix Equity Ventures, LLC, and the
entire amount owed pursuant to the Promissory Note, the Agreement
and the Extension Agreement [a total of $355,000.00] remains due
and payable. 	(Admitted in Defendant's Answer, paragraph 28).
21. 	At the time of the execution of the Promissory Note,
Agreement, and Warranty Deed, Defendant Baillio knew that the JTS
Simms’ Articles of Organization prohibited JTS Simms from
incurring debt other than ordinary trade payables without
unanimous consent of the members, including the Independent
Member. 	(Admitted in Defendant's Answer, paragraph 30).
22. 	At the time of the execution of the Promissory Note (Exhibit
1), Agreement (Exhibit 2) and Warranty Deed (Exhibit 3), Troy
Baillio knew that the Mortgage held by Silar Special
Opportunities on the Simms Building prohibited JTS Simms from
placing a lien on, or transferring any interest in, the Simms
Building, without the written approval of Silar Special
Opportunities. 	(Admitted in Defendant's Answer, paragraph 30).
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23. 	At the time of the execution of the Note, Warranty Deed and
Agreement, Defendant Baillio had no way to repay the $325,000.00
to Plaintiff other than by refinancing the bridge loan with
Silar, or borrowing money from some other source. 	(Admitted in
Defendant's Answer, paragraph 32).
24. 	The needed refinance or borrowing was not approved and never
occurred. 	(Admitted in Defendant's Answer, paragraph 34;
remainder of paragraph denied).
25. 	Troy Baillio and JTS Properties are also alleged to be
liable to other parties for obligations, which obligations
resulted in lawsuits against Troy Baillio and JTS Properties.
(Admitted in Defendant's Answer, paragraph 36; remainder of
paragraph denied).
FACTS DETERMINED AT TRIAL
During Plaintiff’s case, Plaintiff put on the testimony of
four witnesses over two days. 	The Court observed the demeanor of
the witnesses and resolved to its satisfaction certain
discrepancies between different versions of events.
A. 	Witness one.
The first witness, Douglas McKinnon testified as follows:
He is a member of the Plaintiff. 	He is a consultant for an
independent trust company. 	He received his B.A. in business from
Baylor University and has been an entrepreneur for 20 years,
after working in a trust department for 10 years. 	He has
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purchased real estate in the past and dealt with real estate
contracts and mortgages.
Plaintiff, an LLC, was formed by three individuals who each
hold a one-third interest: Mr. KcKinnon and his son Luke McKinnon
and a friend Timothy Steider (the “members”). 	Mr. McKinnon first
heard of Defendant and the Simms Building through a call from Mr.
Steider, who in turn had been contacted by Art Silva, a loan
broker that advised he had a client seeking short term funds to
get from interim financing to permanent. 	Mr. Steider had
previously told Mr. Silva that Plaintiff was interested in
certain types of lucrative deals.
During the evening of June 22, 2007, the members met and
looked at a synopsis of Defendant’s finances that Mr. Silva had
prepared. 	On the morning of June 23, 2007, the members met with
Mr. Silva briefly, who gave them more documents from Defendant.
Mr. Silva left and the members reviewed them, including a
personal financial statement (exhibit 7), a financial statement
of JTS Properties (not in evidence), and an appraisal of and a
cash flow projection for the building.
Later in the morning, the members were joined by Defendant,
who told them that he needed $250,000 for two weeks until his
permanent financing came through. 	Defendant told the members
that he was willing to pay their price. 	Plaintiff required that
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4There was no evidence presented that he did not have such a
letter.
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the Defendant and his LLC’s (“the entities”) would need to put up
a one-half interest in the Simms Building as collateral.
The members then questioned Defendant on his personal
financial statement, which valued his net worth at $7.9 million.
Mr. McKinnon testified that he asked if the statement was valid,
and Defendant stated that it was valid as of April 30, 2007. 	He
told them he also owned property in New Mexico and Massachusetts.
He valued his interest in all the real estate at $6.0 million.
Defendant told the members that JTS Simms purchased the
Simms Building and JTS Properties owned most of JTS Simms.
Mr. McKinnon testified that it was important for the members
to know that Defendant was a successful business person; and that
without a substantial personal financial statement Plaintiff
would not have made the loan.
The members also reviewed the rent rolls for the Simms
Building with Defendant and the building appraisal. 	The members
wanted to determine if the cash flow made the collateral
profitable. 	The members determined that the cash flow was not
sufficient to make interim financing payments, but they believed
that Defendant had a confirmation letter for permanent financing 4.
Mr. McKinnon did not recall reviewing any other documents
regarding the LLCs or Silar.
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Mr. McKinnon described the overall deal as follows:
Defendant stated that he needed $250,000 for Silar and tenant
improvements and for that $250,000 he would sign a note for
$325,000 due in 30 days; in exchange, Plaintiff would loan JTS
Properties $250,000 and as security for payment the entities
would execute a special warranty deed for a 50% interest in the
Simms Building to be kept in escrow in the event of default.
Mr. McKinnon specifically stated that there was a discussion
about Defendant’s ability to deliver a deed. 	Defendant stated
that he had the authority as a majority member to execute a deed.
Defendant stated that his wife was another member and that there
was also a 1% owner. 	Defendant stated that the deed would need
to state that JTS Simms was the grantor. 	Exhibit 3 is a copy of
a June 23, 2007 warranty deed in which JTS Simms granted a 50%
interest in the Simms Building to Phoenix Equity Ventures.
Exhibit 1 is a copy of a June 23, 2007 promissory note in
which JTS Properties and Investments, LLC promises to pay to
Phoenix Equity Ventures $325,000 in one payment on or before July
23, 20007 [sic]. 	The Promissory Note was signed by Troy M.
Baillio, “President”, JTS Properties and Investments, LLC.
Exhibit 2 is a copy of an Agreement between Plaintiff and
JTS Simms dated June 23, 2007 but “[e]xecuted on June 25, 2007".
Recital 1 states the parties’ intent to make a short term loan
regarding the Simms Building. 	Recital 2 states:
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The parties acknowledge that this transaction is being
consummated in a very short period of time, and that
there has been very little time to allow borrower [sic]
to perform due diligence by performing a review of
documents and inspection of the property. 	Accordingly,
the parties acknowledge that the return of, and on, the
lender’s investment is high due to the risk factors
considered by the parties – specifically, real estate
market and financial market considerations. 	The risk
factor for potential misrepresentation or fraud was not
considered risk factor in this transaction, and any
successful action brought by lender for losses for
reasons other than real estate market or financial
market causes shall entitle lender to an award of
attorney’s frees and costs along with consequential and
punitive damages, as the court may deem reasonable.
Terms and Conditions 1 and 2 state that Plaintiff will provide
the $250,000 as follows: a $100,000 check upon execution of the
documents, and a $250,000 check on or before Friday, June 29,
2007 at 4:00 P.M. 	Terms and Conditions 3 states that JTS Simms
(not JTS Properties) will execute a promissory note for $325,000
payable 30 days after execution of the documents. 	Terms and
Conditions 4 states that JTS Simms will execute a warranty deed
for an undivided one half ownership in the Simms Building, to be
held in escrow until the agreement is fully completed. 	Terms and
Conditions 5 and 6 provide for release of the deed in case of
performance or default. 	Terms and Conditions 7 states that JTS
Simms will not cause any liens to be recorded subsequent to the
agreement. 	Terms and Conditions 8 anticipates that the parties
will become joint owners of the Simms Building and will share
equally all equities, liabilities and decisions normally
associated with joint ownership of property of this type. 	Terms
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5Black’s Law Dictionary (8 th ed. 2004) defines “integration”
as:
Contracts. 	The full expression of the parties'
agreement, so that all earlier agreements are
superseded, the effect being that neither party may
later contradict or add to the contractual terms. —
Also termed merger.
It also defines “integration clause” as:
A contractual provision stating that the contract
(continued...)
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and Conditions 9 states that both parties have entered the
agreement voluntarily without coersion [sic], force or threats
and acknowledge that they have had adequate opportunity to have
legal counsel review the Agreement. 	Terms and Conditions 10
acknowledges that Timothy Steider is a licensed real estate
broker and a licenses [sic] attorney in the State of New Mexico
and has in no way represented or provided counsel to either party
and that he is participating in this transaction as a member of
Plaintiff for his own personal profit. 	Terms and Conditions 16
provides that “this lease” [sic] is governed by and construed in
accordance with New Mexico law. 	Terms and Conditions 17 provides
that “this lease” [sic] shall not be altered, changed, or amended
except by written instrument executed by the parties. 	Terms and
Conditions 18 states: “This document contains the entire
understanding between the parties, and any prior oral or written
agreements are incorporated in this agreement and any prior oral
or written agreements are hereinafter excluded from this
agreement.” 	(the “integration clause 5 .”) 	The Agreement was
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5(...continued)
represents the parties' complete and final agreement
and supersedes all informal understandings and oral
agreements relating to the subject matter of the
contract. — Also termed merger clause; entire-agreement
clause.
6Regarding the appraisal, Mr. McKinnon saw two, one for
$12.8 million and one for $13 million. 	Plaintiff contacted the
appraiser after the bankruptcy filing, who allegedly stated that
the property was worth only $11 million. 	The appraiser did not
appear as a witness, however. 	Mr. McKinnon claims that the
appraisals were altered. 	Mr. McKinnon also specifically
(continued...)
Page -16-
signed by JTS Simms, by Troy Baillio, its Member and Phoenix
Equity Ventures, LLC by G. Luke McKinnon, Member.
Mr. McKinnon specifically testified that the Agreement
outlined the total agreement that Plaintiff had with the
entities.
When questioned regarding Plaintiff’s due diligence, Mr.
McKinnon stated that doing any was difficult due to the urgency
of the situation. 	He believed that Silar was going to “drop the
hammer” on Monday, so the situation was urgent. 	He stated “we
relied on [Defendant’s] representations as little as we could.”
He also stated that after the $100,000 was lent, the members
visited the building and went to the courthouse to verify the
ownership of the building.
When questioned what Plaintiff specifically relied on in
making the loan, Mr. McKinnon stated that it relied on: 1) the
appraisal of $12 to $13 million 6, 2) the purchase price for the
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6(...continued)
testified that he was not accusing Defendant of altering the
appraisal. 	He just opined that someone did. 	Plaintiff’s only
evidence that the appraisal was not accurate is hearsay. 	And,
Plaintiff presented no evidence that Debtor altered anything.
The Court is unable to find that this was an intentional
misrepresentation.
7There was no evidence presented at trial that this was a
misrepresentation.
8The personal financial statement was probably materially
false. 	This will be discussed below.
9The member’s expertise is not a representation by
Defendant.
10 Other than the Defendant’s personal financial statement,
Plaintiff has not proved anything else was inaccurate.
Page -17-
building at $7 million 7, 3) Defendant’s personal financial
statement 8, and 4) the members’ expertise 9 in looking at real
estate transactions and the accuracy of the items provided 10 .
Mr. McKinnon stated that this $250,000 transaction was the
largest deal that Plaintiff had entered.
When asked if Plaintiff had considered what would happen if
Silar started to foreclose, Mr. McKinnon testified that the money
being lent was to prevent foreclosure. 	In other words, no.
The next contact Plaintiff had with Defendant was either one
day before or the due date of the loan, in a phone call from
Defendant’s attorney. 	The message was that the Internal Revenue
Service had filed a lien and that Defendant had the money but
could not pay it, and he was requesting an extension. 	Mr.
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11 On cross examination, Mr. McKinnon testified that all of
Plaintiff’s projects were “hard money deals.” 	He described those
as problem cases where no alternative financing was available.
Plaintiff’s procedures did not call for a loan application. 	When
asked how the loans were documented, or records made of them, he
stated that he did not understand the question. 	The Court
concludes that Plaintiff did not have established policies and
procedures in place and dealt with loans on a case by case basis.
Page -18-
McKinnon stated that Plaintiff offered a 46 hour extension in
exchange for an additional $30,000. 	Defendant agreed.
Mr. McKinnon then testified that Defendant’s attorney wrote
a letter to the escrow agent denying that there was a default and
demanding that the deed not be released. 	As of the trial date
neither the loan nor the extension fee were paid.
On cross examination, Mr. McKinnon testified that Plaintiff
was formed in November, 2006 and had entered into five or six
previous transactions. 	All were single family residence
bailouts. 	He testified that all three members have years of real
estate experience. 	The experience is not in making real estate
loans, however. 	None of the members were ever in the “loan
business.” 	Rather, they would advance money in exchange for an
ownership interest in real estate 11 . 	That was why the “security”
Plaintiff had on the Simms Building was a promissory note and a
warranty deed.
Mr. McKinnon stated that in the past he had guaranteed a
loan. 	He understood that a lender could require a guarantee in
order “to get paid.” 	Plaintiff did not have Defendant guarantee
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12 He earlier testified that Defendant told him has wife also
had an interest and that there was a 1% owner. 	There was no
evidence that any member questioned why there would be a 1%
owner, or who it was, or what the function of such an owner would
be.
Page -19-
the loan in this case. 	When asked why there was no personal
guarantee, Mr. McKinnon stated that nobody had suggested a
personal guarantee because “we had one-half of the building.” 	At
trial, however, in retrospect he believed that Plaintiff should
have had Defendant sign one.
Mr. McKinnon knew what a “special purpose entity” was, but
had not heard the term “bankruptcy remote entity.” 	He was
unaware that the JTS Simms LLC documents established an
independent member 12 .
The Plaintiff did not see the Silar mortgage before
executing the loan documents because there was “no time.”
Plaintiff did not ask to see the mortgage at the meeting because
“[Defendant] was in a hurry.”
When questioned what exactly Defendant misrepresented, Mr.
McKinnon stated that there were three and only three items: 1)
Defendant’s failure to disclose the contract restrictions about
transfers of the Sims Building, 2) the personal financial
statement, and 3) the appraisal.
The personal financial statement shows $312,000 in cash.
When asked why Defendant did not simply pay his own money to
Silar, Mr. McKinnon stated that Plaintiff knew that the money was
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Page -20-
gone because it was used for a down payment on the Simms
Building. 	When asked how Plaintiff could then believe that the
financial statement was still accurate, he responded that the
$312,000 was immaterial.
When asked how Plaintiff would collect on its loan, Mr.
McKinnon responded “the deed.” 	When asked what Plaintiff would
do if the Silar permanent financing fell through, he responded
“the deed.” 	However, he also stated that Defendant had verbally
guaranteed that he expected permanent financing within two weeks,
and that Art Silva had confirmed that.
Mr. McKinnon admitted that Defendant told Plaintiff that JTS
Simms was a special purpose entity. 	He knew what a “due on sale”
clause was, and he assumed that there was one in the Silar
mortgage. 	He thought Silar would have called the loan if it knew
that Plaintiff had acquired a one-half interest in the building.
On redirect Mr. McKinnon again summarized his understanding
of the deal: We [i.e., Plaintiff] agreed to loan whoever needed
the money, $250,000, and we’d receive either $325,000 or one-half
the building in two weeks. 	The security was critical. 	“One-half
of a building worth $2 or $3 million was key to making it work.”
B. 	Witness two.
Defendant testified second as an adverse witness for
Plaintiff. 	At the time of trial he was unemployed, but in 2007
he was buying and selling real estate. 	At one time he testified
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Page -21-
that he owned 97% of JTS Simms and a “Special Member” owned the
other 3%. 	At another time he stated that JTS Properties owned
97% of JTS Simms. 	He and his wife each own 50% of JTS
Properties. 	Defendant testified that he did not understand the
difference between personal assets and corporate assets, or
personal liabilities and corporate liabilities, or the
significance of this lack of knowledge. 	Later in his testimony
Defendant purported not to understand the difference between a
mortgage and a deed, or between real estate and an entity that
owns the real estate. 	Despite having a career that involved
purchase and sale of real estate, Defendant claims he has never
received a deed because he never owned any property outright – he
always signed a mortgage. 	He admitted he could be wrong on this
point, but believed he only applied for loans, signed loan
documents at the title companies, and sometimes would sign a
guarantee or HUD forms. 	When later questioned whether Simms
Building, Inc. (The prior owner from whom JTS Simms purchased the
Simms Building) filed a lawsuit against him on a promissory note
he responded “I don’t know. 	I didn’t show up. 	I should have
only owed $530,000. 	I don’t even read complaints, I can’t deal
with it, I throw them in the trash.” 	The Court was surprised
about the extent of Defendant’s claimed lack of knowledge, and
finds the witness less than honest and credible. 	The Court also
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13 The inference is that he lacked permanent financing when
he paid $350,000 for the option.
Page -22-
finds that in 2007, Defendant was in business matters quite above
his head.
In late 2006 or early 2007, Defendant paid a non-refundable
$350,000 for an option to purchase the Simms Building. 	He sought
financing from several people 13 . 	He finally obtained interim
financing with Silar Special Opportunities Fund. 	He understood
that the Silar loan would be for a sixty-day term and then roll
over into a twelve-month loan; and, if it failed to rollover
there would be a $405,000 prepayment penalty. 	That, however, was
not Silar’s understanding and the issue was litigated in the JTS
Simms bankruptcy case. 	Eventually Silar obtained stay relief and
foreclosed on the property.
Defendant met Plaintiff during his attempt to payoff the
Silar loan. 	He went to Art Silva, a loan broker, seeking a “hard
money loan,” which he described as an alternative to mainstream
financing. 	Hard money loans are difficult to find and come with
a high interest rate due to perceived risk. 	Defendant stated
that Mr. Silva put him in contact with Mr. Steider about ten days
before the loan closed, and that during that ten days he and Mr.
Steider exchanged e-mails about the deal.
Defendant’s recollection of the June 23, 2007 meeting is
drastically different from Mr. McKinnon’s. 	Defendant testified
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14 This “something” was not pursued at trial.
Page -23-
that they did not review his personal financial statement at the
meeting, nor the JTS Simms financial statement, nor the rent
rolls. 	Defendant knew that Plaintiff had those documents, but
they did not discuss them. 	The sole topic of discussion was the
documents that were being executed as they met. 	Defendant stated
that he never discussed his personal finances with Plaintiff
until after default, probably in August, 2007. 	At that time he
was attempting to repay the debt and gave a list of assets and
debts and told what the LLC’s owned. 	Debtor also testified that
when he prepared his personal financial statement in April, 2007,
it was generally accurate, “but missed something 14 .”
Defendant also testified that he knew that any conveyance of
the Simms Building real estate had to be approved, but he was
unsure whether it had to be approved by Silar or by the Special
Member. 	His attorney informed him that there was no prohibition
on transferring units of JTS Simms as collateral. 	Therefore, his
intent was to pledge units of JTS Simms as collateral for
Plaintiff’s loan. 	Defendant further testified that he informed
Plaintiff of this restriction and the necessity of structuring
the deal to conform to this restriction. 	Defendant testified
that he told Plaintiff the only way he could do the loan was by
pledging “shares.”
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15 This profit and loss statement is not accompanied by a
balance sheet, or notes to describe the accounting method or any
assumptions. 	It does not make any disclosures, and is not signed
by anyone. 	The Defendant also did not disclose the source of
this document in the e-mail or at trial.
16 The term “Simms” is not defined in the document, but
presumably is JTS Simms.
Page -24-
Defendant’s testimony is supported by Exhibit F. 	Exhibit F
is an e-mail from Defendant to Mr. Steider dated June 20, 2007,
that enclosed the prior owner’s profit and loss statement for
2006 15 and two “security instruments.” 	The security instruments
were a draft promissory note from JTS Properties and a draft “JTS
Simms Unit Transfer Agreement” (“Transfer Agreement”). 	The draft
Transfer Agreement is actually an agreement between JTS
Properties and an unspecified lender. 	It provides that, upon
default of the loan, JTS Properties will transfer an unspecified
number (to be determined) of units of “Simms 16 ” to the lender in
full satisfaction for the note. 	Section 2, Risk Factors, states
that “These securities are highly speculative in nature, and
Lenders in this offering face a substantial risk that they will
lose all or part of their investments, or that their investments
will generate an inadequate return.” 	It further states that
Simms has no operating history and the membership units have
restrictions on transfer and there may never be a market for
them.
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17 He never clarified which LLC.
Page -25-
Defendant testified that when he showed up on the morning to
execute documents, Plaintiff had different documents from those
in the e-mail. 	Defendant questioned what documents he was
signing, and claims that the members told him they were “the same
thing.” 	He further testified that when he signed the warranty
deed (exhibit 3) the members told him he was only transferring a
one-half interest in the LLC 17 . 	When asked whether the deed
transferred real estate rather than an LLC, he responded “That
was not how it was explained to me.” 	He stated that he only
discovered that he had signed a deed about a month later when
Plaintiff attempted to remove it from escrow in order to record
it.
C. 	Witness three.
The third witness was Art Silva, a mortgage broker who finds
loans for residential and commercial properties. 	Defendant
informed Mr. Silva that he needed a short term loan and a
refinance of a property that already had a mortgage. 	He then
came to Mr. Silva’s office with papers: personal and corporate
financial statements, profit and loss statements, tax returns,
appraisals, a game plan, pro formas, and rent rolls. 	Mr. Silva
specifically recalled receiving both the personal and JTS
Properties financial statements, and recalled giving both to the
potential lenders. 	Mr. Silva also gave Defendant Mr. Steider’s
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18 The “packet” itself, as a whole, does not appear in
evidence. 	Nor do any tax returns, pro formas, game plans, or LLC
financial statements.
Page -26-
name as a potential lender and gave a copy of the packet 18 of
documents to Mr. Steider. 	When Mr. Silva had no further contact
with Defendant ninety days to six months later, he shredded his
file.
D. 	Witness four.
The fourth witness was Timothy Steider, an attorney and
member of Plaintiff. 	Mr. Steider was a real estate broker before
law school and now practices real estate law in Albuquerque. 	He
testified that Plaintiff was organized to invest in properties.
Mr. Silva introduced Defendant to Plaintiff and gave Mr. Steider
a loan packet. 	The members reviewed the packet and decided it
was worth looking into. 	The terms were not good enough, however,
because Defendant was offering to pledge shares in an LLC. 	Mr.
Steider claimed that Plaintiff was simply not interested in
shares. 	He also recalled receiving an e-mail with a share
purchase agreement.
Mr. Steider did not recall receiving the e-mail in Exhibit F
that contained the unit transfer agreement. 	He did recall seeing
the document at the June 23 meeting. 	He testified “We told
[Defendant] at the meeting we were not interested. 	We decided
that if we could get an interest in the Simms Building it would
be worth it.”
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19 For example, the tax basis of assets is omitted and there
is no deferred tax calculation if the assets were to be sold.
Since most of the assets are depreciable real estate or LLC’s
heavily invested in depreciable real estate, this could be a
significant number. 	“Accounting for deferred tax liability is in
accordance with generally accepted accounting principles.” 	U.S.
v. Hillard, 31 F.3d 1509, 1511-12 (10 th Cir. 1994).
Page -27-
When asked what was his understanding of the deal, he stated
that it was “the Simms Building as collateral to guarantee a
loan.” 	He stated that the Plaintiff wanted “a real estate
secured investment.” 	When asked why Plaintiff was not
interested in shares, he responded “we didn’t know him or his
company.” 	He then testified that Defendant finally agreed to
give a deed in escrow.
Mr. Steider next testified that there were specific
discussions of Defendant’s authority to execute a deed and that
Defendant told them he could. 	Mr. Steider then testified that if
Plaintiff had known that he was prohibited from signing a deed
there would have been no loan.
Mr. Steider testified that Defendant’s personal financial
statement had a large impact on the decision to lend. 	Although
the financial statement showed $6.0 million out of a total $7.9
million net worth was in JTS Properties, he testified that the
members did not single that asset out to look at or verify. 	The
statement was obviously not professionally prepared and it fails
to list any assumptions, notes, or disclosures. 19 	Mr. Steider
testified that it looked more like a summary of a financial
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Page -28-
statement as opposed to an actual financial statement because of
its lack of detail.
When asked why Defendant needed cash, Mr. Steider stated
that Defendant claimed he needed it to stay current until a
refinance of the property came through, that he had a lot of
commitments but was cash poor, but he knew money was coming. 	He
further testified that that seemed “viable” to the members, and
that they “understood.”
Mr. Steider prepared the subject documents. 	When questioned
why the wrong LLC appeared as the borrower on the promissory
note, he testified that it didn’t matter, the members believed
they were all one and the same thing. 	He also testified that the
deed was what the agreement required.
Mr. Steider testified that the members were satisfied with
the package from the mortgage broker and assumed that Mr. Silva
had done due diligence. 	He also testified that he saw an
appraisal of the building at $12.8 million with approximately
$6.5 owed on a mortgage, so believed that there was a large
equity. 	He claimed that the Plaintiff offered to outright
purchase one-half of the property for $250,000 instead of loaning
the money, but Defendant refused.
When asked specifically what he relied on in deciding to
approve the loan, he responded that he relied on 1) the
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20 The questioning did not follow up on exactly which
documents he relied. 	Earlier he testified that he relied on the
personal financial statement. 	The actual loan documents would
not have been drawn up before a decision was made to make the
loan, so it could not have been those documents. 	It must have
been the documents in the loan packet, only some of which are in
evidence. 	Plaintiff did establish a question regarding an
appraisal that was possibly altered, but specifically did not
accuse Defendant of that act. 	And, Plaintiff has not pointed to
anything else in the loan packet that was materially false.
21 The profit and loss statement was that of Simms Building,
Inc., the prior owner of the building.
22 Defendant’s representation that the deal was “solid” was
an opinion. 	Opinions are not false representations of existing
or prior facts. 	Hodgin v. Conlin (In re Conlin), 294 B.R. 88,
100 (Bankr. D. Minn. 2003)(A debtor’s representation that a
transaction is safe or makes good financial sense is only an
opinion, not a representation of fact actionable under section
523(a)(2)(A).) 	“Solid” in this context is a relative term.
Solid compared to what? 	Solid based on what factors? 	See
Restatement (Second) of Torts § 538A. 	“A representation is one
of opinion if it expresses only (a) the belief of the maker,
without certainty, as to the existence of a fact; or (b) his
judgment as to quality, value, authenticity, or other matters of
judgment.” 	Id. cmt. b expands:
One common form of opinion is a statement of the
maker's judgment as to quality, value, authenticity or
similar matters as to which opinions may be expected to
differ. 	Thus the statement that an automobile is a
good car is a relative matter, depending entirely upon
the standard set as to what is a good automobile and
what is not, and it is a matter upon which individual
judgments may be expected to differ. 	The maker of a
statement of this nature will normally be understood as
expressing only his own judgment and not as asserting
anything concerning horsepower, riding qualities or any
of the dozen other factors that would influence his
judgment.
Page -29-
documents 20 , 2) the equity in the Simms Building, 3) “heavily” on
the profit and loss statement 21 , 4) Defendant’s representations
that the deal was “solid 22 ”, 5) Defendant’s representation that he
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23 Defendant did have a lot of real estate experience. 	The
testimony indicated that he had bought and sold over 50 houses.
This representation appears true. 	If anything, generalized
statements such as this appear to be mere puffing rather than a
misrepresentation. 	See, e.g., Alvine v. Keller (In re Keller),
72 B.R. 599, 602 (Bankr. M.D. Fla. 1987)(An alleged
representation by defendants that their corporation enjoyed an
excellent reputation in the community was merely puffing and not
fraudulent.)(Decided pre-Field on clear and convincing evidence
grounds, but that is not material to the point being cited.); see
also Rezin v. Barr (In re Barr), 194 B.R. 1009, 1018 (Bankr. N.D.
Ill. 1996)(Marketing hyperbole is mere puffing.)
24 An honest appearance is not a statement by the Debtor and
cannot be the basis for holding a debt nondischargeable.
25 The Court thinks that it takes a bit of a stretch to
consider Mr. Silva as Defendant’s “agent.” 	However, even
assuming he were and therefore his statements were attributable
to Defendant, there was no proof that the statements regarding
the expectation of the imminent refinance were untrue.
Page -30-
had a lot of real estate experience 23 , 6) Defendant’s honest
appearance 24 , and 7) Mr. Silva’s representation that the refinance
would occur in two weeks 25 . 	He reiterated that if he had known of
the transfer restrictions he would not have agreed to the loan.
On cross examination, Mr. Steider testified that the members
looked at the loan packet for an “hour or two.” 	He also
testified that they wanted a secured debt, not a debt guaranteed
by Defendant. 	To ensure payment, they secured the loan with the
Simms Building.
He further testified that no member reviewed the Silar
mortgage before the loan closed. 	When asked if that were
“uncautious” he responded that Mr. Silva had given them his due
diligence and told them it was a refinancing in two weeks. 	When
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Page -31-
asked if the Silar mortgage was in the loan packet, he answered
“probably was – probably some title work.” 	No member had
reviewed the mortgage because there was no time.
When questioned why Plaintiff did not require a personal
guarantee after seeing the personal financial statement, Mr.
Steider responded that the members “didn’t know [Defendant] but
we knew the Simms Building and were willing to take that.”
DEFENDANT’S MOTION TO DISMISS
At the close of Plaintiff’s case, Defendant moved to
dismiss. 	After reviewing the testimony presented by Plaintiff
and the arguments of the parties, and considering the relevant
authorities, the Court finds that the Defendant’s Motion is well
taken and should be granted.
First, as to both dischargeability claims, Defendant argues
that the loan document contains an integration clause that
precludes the Plaintiff from arguing it relied on anything
extrinsic to the explicit statement in the document.
Next, Defendant makes several arguments specific to the
“tort” claim (the section 523(a)(2)(A) claim). 	First, Defendant
argues that there was no misrepresentation: Plaintiff bargained
for either $75,000 in interest in 30 days or an escrowed deed to
one-half of the Simms Building. 	Defendant asserts he complied by
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26 Plaintiff also argues that Defendant misrepresented the
facts by failing to disclose that some contract with Silar (not
in evidence) prohibited anyone from executing a deed or granting
a junior lien on the Simms Building. 	The Court does not find
this relevant. 	The fact that Defendant or one of his LLC’s
breached a contract with Silar does not impact on the validity of
the deed that in fact was delivered to Plaintiff. 	See Kokoricha
v. Estate of Keiner, 236 P.3d 41, 47, 2010 WL 2793780 at *6,
2010-NMCA-053 at ¶ 26 (N.M. App. 2010)(Despite proof of fraud, a
voidable deed passes good title to a bona fide purchaser.)(Citing
State ex rel State Tax Commission v. Garcia, 77 N.M. 703, 709,
427 P.2d 230, 234-35 (1967)). 	See also Security Federal Savings
& Loan Ass’n of Albuquerque v. Commercial Investments, Ltd. (In
re Commercial Investments, Ltd.), 99 B.R. 455, 459 (Bankr. D.
N.M. 1989)(Under New Mexico law, a bona fide purchaser for value
takes free of defects that are unknown to the purchaser and not
discoverable in the exercise of ordinary care.) 	Mr. Steider
further testified that despite certain omissions in the deed, it
was valid as written and sufficiently acknowledged to record.
Plaintiff also raises certain obstructions that Defendant
and his attorney created to hinder Plaintiff from removing the
deed from escrow after default. 	These actions are not related to
nor probative of fraud in the inception of the loan or the false
financial statement.
Page -32-
executing and escrowing a deed 26 , so there was no
misrepresentation. 	Furthermore, Plaintiff in fact received
exactly that for which it bargained. 	To the extent Defendant
argued that Plaintiff suggested that statements regarding the
refinance of the Simms Building were untrue, Plaintiff
specifically admitted 1) that it was not arguing that the
promises to pay were misrepresentations and 2) that Defendant
really thought that the refinance would go through.
Second, Defendant argues that Plaintiff did not prove
justifiable reliance on anything Defendant did, said or omitted.
Rather, he claims Plaintiff relied on Mr. Silva, the upcoming
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Page -33-
refinance of the Simms Building and the escrowed deed to a multi-
million dollar property. 	Third, Defendant argues that any
representations were unrelated to the actual loss, which was
caused by the failure to refinance.
Finally, Defendant also makes several specific arguments
regarding the false financial statement claim. 	First, Defendant
argues that Plaintiff did not actually rely on the financial
statement. 	The borrower was JTS Properties. 	Defendant urges
that, if Plaintiff were truly relying on Defendant’s personal
financial statement as a source of funds for repayment, it would
have insisted on a personal guarantee by Defendant. 	Plaintiff
did not obtain a personal guarantee.
Second, Defendant argues that the financial statement is not
one that a professional real estate investor would reasonably
rely on. 	Third, Defendant argues that the fact that the loan was
a “hard money loan” in itself proves Plaintiff was relying on the
collateral more than any financial statement as a source of
repayment. 	Fourth, Defendant argues that the financial statement
was unrelated to the loss; the loss was caused by the failure to
refinance, which was exactly the risk Plaintiff assumed.
PLAINTIFF’S RESPONSE
Plaintiff responds that its reliance need only be
justifiable, and that in this case it was. 	Plaintiff consists of
three individuals unsophisticated in large real estate
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Page -34-
transactions. 	Silva was Defendant’s agent and approached them
with a materially false financial package that induced their
reliance and subsequent loss. 	Defendant’s omission of facts
relevant to transfer of ownership in the Simms Building was
fraudulent, and Plaintiff would never have loaned the money had
it known of the restrictions. 	It is true that the loan was a
“hard money” loan, but that further justifies Plaintiff’s
reliance because of the “back-up security.”
DISCUSSION
To make out a prima facie case under a section 523(a)(2)(A)
or 523(a)(2)(B) cause of action, the lender must prove each
element of the appropriate cause of action by a preponderance of
the evidence. 	Grogan v. Garner, 498 U.S. 279, 286 (1991). 	Thus,
the Court must grant the Debtor's motion for judgment on partial
findings with respect to either of Plaintiff’s objections to
discharge of debt if it failed to prove any element of the
appropriate objection by a preponderance of the evidence.
Palmacci v. Umpierrez (In re Umpierrez), 121 F.3d 781, 787 (1 st
Cir. 1997).
A. 	The Integrated Contract Argument
Defendant argues that the integration clause quoted above
precludes Plaintiff’s claims. 	This argument is logical and
appealing. 	And, in fact, several bankruptcy and appellate courts
have ruled this way, based on state law. 	See Margaux Warren Park
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Page -35-
Partners, Ltd. v. GE Business Financial Services, Inc. (In re
Margaux Warren Park Partners, Ltd.), 2009 WL 5061806 at *5
(Bankr. E.D. Tex. 2009):
The existence of merger clauses both in the Loan
Agreement and in the negotiating agreement bars all of
Plaintiff’s fraud claims as a matter of law. ... These
merger clauses are effective to bar all of Plaintiff’s
fraud claims because they were clear and unequivocal
expressions of intent, by two sophisticated and
knowledgeable parties, represented by counsel and
dealing at arms length, to disclaim reliance on such
alleged representations beyond the terms of the Loan
Agreement and the negotiating agreement.
(Citations omitted) and Hovis v. General Dynamics Corp. (In re
Marine Energy Systems Corp.), 396 B.R. 895, 908-15 (D. S.C.
2007), aff’d, 299 Fed. Appx. 222 (4 th Cir. 2008)(District Court
examines “anti-reliance” provisions in a confidentiality
agreement and asset purchase agreement and finds that under South
Carolina law, New York law, and Delaware law, Plaintiff was not
entitled to pursue fraud claims.)
In this instance, the merger clause is somewhat minimal, and
it is certainly questionable whether in the context of the merger
clause Plaintiff intended that it be precluded from asserting
fraud or reliance on any alleged fraud by Defendant. 	For
example, Recital 2 of Plaintiff’s Trial Exhibit 2 raises
explicitly “potential misrepresentation or fraud” and
contemplates the possibility of a subsequent action for that.
Thus the language of the merger clause should probably not be
construed as an “anti-reliance” provision, notwithstanding that
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Page -36-
it was Plaintiff’s member that drafted the merger clause. 	This
Court did not discover any New Mexico cases directly on point.
But see Wilburn v. Stewart, 110 N.M. 268, 270, 794 P.2d 1197,
1199 (1990)(“We ... hold that parol evidence is admissible to
show any misrepresentation that induced the parties to contract,
whether they are fraudulent, negligent, or innocent.”)(Citation
omitted.) Based on the rulings on Defendant’s other arguments,
however, it is not necessary for the Court to predict how New
Mexico would rule on this argument at this time.
B. 	The “Tort Claim”, section 523(a)(2)(A).
The Court concludes that Plaintiff has not proved reliance,
justifiable reliance or causation by a preponderance of the
evidence. 	The section 523(a)(2)(A) claim will be dismissed.
B1. 	Reliance and Justifiable Reliance.
In Field the United States Supreme Court opined that section
523(a)(2)(A) was designed to deal with the common law torts of
false pretenses, false representation, and fraud. 	Field, 516
U.S. at 69. 	Congress could have enumerated the elements of these
causes of action but did not. 	Id. 	This suggests that Congress
meant to incorporate the established common law meanings of these
terms. 	Id. (citation omitted). 	The Court then looked to the
Restatement (Second) of Torts (1976) (“Restatement”) as
definitive of the meanings:
The section on point [in the Restatement] dealing with
fraudulent misrepresentation states that both actual
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Page -37-
and “justifiable” reliance are required. [Restatement
(Second) of Torts] § 537. 	The Restatement expounds
upon justifiable reliance by explaining that a person
is justified in relying on a representation of fact
“although he might have ascertained the falsity of the
representation had he made an investigation.” 	Id., §
540. Significantly for our purposes, the illustration
is given of a seller of land who says it is free of
encumbrances; according to the Restatement, a buyer's
reliance on this factual representation is justifiable,
even if he could have “walk[ed] across the street to
the office of the register of deeds in the courthouse”
and easily have learned of an unsatisfied mortgage.
Id., § 540, Illustration 1. ... Here a contrast between
a justifiable and reasonable reliance is clear:
“Although the plaintiff's reliance on the
misrepresentation must be justifiable ... this does not
mean that his conduct must conform to the standard of
the reasonable man. 	Justification is a matter of the
qualities and characteristics of the particular
plaintiff, and the circumstances of the particular
case, rather than of the application of a community
standard of conduct to all cases.” 	Id., § 545A,
Comment b. 	Justifiability is not without some limits,
however. 	As a comment to § 541 explains, a person is
“required to use his senses, and cannot recover if he
blindly relies upon a misrepresentation the falsity of
which would be patent to him if he had utilized his
opportunity to make a cursory examination or
investigation. 	Thus, 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, the rule stated in this
Section applies only when the recipient of the
misrepresentation is capable of appreciating its
falsity at the time by the use of his senses.
Id. at 70-71. 	The Court then continued to examine the modern
authorities on tort law:
Similarly, the edition of Prosser's Law of Torts
available in 1978 (as well as its current successor)
states that justifiable reliance is the standard
applicable to a victim's conduct in cases of alleged
misrepresentation and that “[i]t is only where, under
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27 Calculated as follows: $75,000 interest ÷ 30 days = $2,500
per day. 	$2,500 per day * 360 day year = $900,000 interest for
(continued...)
Page -38-
the circumstances, the facts should be apparent to one
of his knowledge and intelligence from a cursory
glance, or he has discovered something which should
serve as a warning that he is being deceived, that he
is required to make an investigation of his own.” 	W.
Prosser, Law of Torts § 108, p. 718 (4th ed. 1971);
(footnotes omitted); accord, W. Keeton, D. Dobbs, R.
Keeton, & D. Owen, Prosser and Keeton on Law of Torts §
108, p. 752 (5th ed. 1984) (Prosser & Keeton). 	Prosser
represents common-law authority as rejecting the
reasonable person standard here, stating that “the
matter seems to turn upon an individual standard of the
plaintiff's own capacity and the knowledge which he
has, or which may fairly be charged against him from
the facts within his observation in the light of his
individual case.” 	Prosser, supra, § 108, at 717;
accord, Prosser & Keeton, § 108, at 751[.]
Id. at 71-72. 	The Court ruled that for section 523(a)(2)(A)
purposes a plaintiff must prove justifiable, but not reasonable,
reliance. 	Id. at 74.
The Plaintiff is an LLC composed of three members that are
intelligent, well educated, and very experienced in real estate
matters. 	One is a real estate broker and real estate attorney.
Plaintiff has experience in making loans for distressed
properties owned by individuals under the extreme stress of the
threat of losing their homes. 	Plaintiff should be held to this
level of capacity, knowledge and sophistication.
First, the Court finds that Plaintiff did not actually rely
on any representations by Defendant. 	Instead, it relied on
either 1) the 360 27 % interest rate it demanded which was supported
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27 (...continued)
one year. $900,000 interest ÷ $250,000 principal = 3.6 = 360%.
(In fact, this calculation significantly understates the interest
rate, since the first advance of $100,000 was delivered two days
after the execution of the documents on June 23 and the second
advance of $150,000 was delivered six days after the execution of
the documents.) 	The $30,000 for a 46-hour extension constituted
a much higher interest rate. 	Rounding the 46 hours up to 48 for
ease of calculation, $30,000 interest ÷ 2 days = $15,000/day *
360 day year = 2,160% per annum.
Page -39-
by everyones’ expectation that the refinance would come through
very shortly, or 2) the real possibility of a windfall return of
one-half of the Simms Building. 	It was very clear to the Court
that the only factors that were of any importance to Plaintiff
were the value of the Simms Building, the building’s ability to
cash flow, and Plaintiff’s ability to obtain a one-half interest.
The two members that testified stated that they relied as little
on Defendant as possible, they did not know him or his business,
and they relied on “the deed.”
Second, the Court finds that any reliance by Plaintiff would
not have been justified under the circumstances. 	As the Supreme
Court has explained, a duty to investigate can arise when the
surrounding circumstances give rise to red flags that merit
further investigation. 	See Field, 516 U.S. at 72. 	Thus, when
the circumstances are such that they should warn a creditor that
he is being deceived, he cannot justifiably rely on the
fraudulent statements without further investigation. 	Considering
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28 When a lender is sophisticated, the sums involved are
significant, and lender has no history with borrower, the lender
cannot justifiably rely on information only from the borrower.
Columbo Bank, FSB v. Sharp (In re Sharp), 2007 WL 2898704 at *4
(Bankr. M.D. Md. 2007), subsequently aff’d, 340 Fed. Appx. 899,
907 (4 th Cir. 2009). 	Compare Johnson v. Riebesell (In re
Riebesell), 586 F.3d 782, 792 (10 th Cir. 2009)(It was justifiable
for plaintiff to initially rely on debtor because he was a long-
standing friend and client and plaintiff already trusted him.
However, plaintiff was a competent businessman who was aware that
(continued...)
Page -40-
Plaintiff’s level of sophistication the following “red flags”
should have been obvious:
1. 	How is it conceivable that someone with a net worth of over
$7.9 million would be out in the alternative financing market
trying to borrow money at a 360% interest rate?
2. 	If the Simms Building were truly worth $12.8 million, why
would the previous owners have sold it to JTS Simms for only $7
million? 	Isn’t an actual arms length sales price the best
indication of value? 	If the building only had a $7 million
value, and Plaintiffs knew that Silar had a $6.5 million
mortgage, how could Plaintiff believe there was a huge equity?
3. 	Why would an experienced real estate investor with great net
worth offer a warranty deed to a property (as opposed to only a
lien interest) with a supposed net worth of several millions as
security for a $250,000 loan?
4. 	Didn’t the extreme time pressures to close the loan suggest
to Plaintiff a certain desperation on Defendant’s part?
Plaintiff admits it knew neither the Defendant nor his business 28 .
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28 (...continued)
debtor’s financial condition was declining, so further extensions
of credit were not justifiable.) (“Even under the ‘justifiable’
test, however, the plaintiff must ‘use his senses’ and at least
make ‘a cursory examination or investigation’ of the facts of the
transaction before entering into it.”)(Citing Field, 516 U.S. at
71.)
29 See Johnson v. Curtis (In re Curtis), 2006 WL 1506209 at
*10 (Bankr. C.D. Ill. 2006)(Promises of high returns – in this
case 100% in 15 days – on investments that seem too good to be
true usually turn out to be too good to be true.)(Citing U.S. v.
Frykholm, 362 F.3d 413, 414 (7 th Cir.), cert. denied, 543 U.S.
928 (2004)(Ponzi scheme)).
Page -41-
Wasn’t Plaintiff curious of how and why Defendant’s situation had
deteriorated to this point?
5. 	The Court finds it more likely than not that Plaintiff had
the Silar mortgage in its possession before the loan closed.
Plaintiff was not justified in relying on an assumption that Mr.
Silva had read it and that Mr. Silva’s reading of the Silva
mortgage precluded Plaintiff’s members from needing to read the
mortgage themselves.
6. 	The deal was too good to be true 29 .
7. 	Why didn’t Plaintiff take Defendant’s word for it when he
stated he was out of cash and could not pay his obligations
without a 360% loan?
8. 	If Plaintiff believed Defendant’s allegations of net worth
why did it not insist on a personal guarantee?
9. 	Defendant sent an e-mail to Plaintiff that contained
warnings that any ownership interest in or loan to JTS Simms
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Page -42-
might turn out to be worthless, the interests might not ever be
transferrable, and that JTS Simms had no operating history.
In summary, the Court finds that Plaintiff 1) did not
actually rely on any of Defendant’s representations and 2) if it
had, it would not have been justifiable.
B2. 	Loss Causation.
One element of a section 523(a)(2)(A) claims is the proof
that the debtor’s representation caused the creditor to sustain a
loss. 	Young, 91 F.3d at 1373.
As Field teaches, § 523(a)(2) requirements must be
determined under common law tort principles. 	For this
reason, a damage requirement is uniformly read into §
523(a)(2)(A), even though no express inclusion of such
a requirement appears in the text of that Code section.
We attribute the presence of the requirement that
“resulting injury” proximately caused by alleged
fraudulent conduct is included as a requirement in a §
523(a)(2)(A) claim to the fact that this is an element
which is necessary for the proof of common law fraud
generally.
Woodstock Housing Corp. v. Johnson (In re Johnson), 242 B.R. 283,
292 (Bankr. E.D. Pa. 1999). 	See also Domann v. Vigil, 261 F.3d
980, 984 (10 th Cir. 2001)(“[U]nder New Mexico law, proximate cause
is a necessary element to any recovery in tort.”)(Citation
omitted.) 	Accord Cain v. Champion Window Co. of Albuquerque,
LLC, 2007-NMCA-085, ¶25, 142 N.M. 209, 216, 164 P.3d 90, 97 (Ct.
App. 2007)(A defendant is liable for damages proximately caused
by fraudulent misrepresentation.)(Citing UJI 13-1633 NMRA.)
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Page -43-
To prove fraud under the Restatement, a plaintiff must prove
“proximate causation”, which consists of both “causation in fact”
and “legal causation.” 	See Gem Ravioli, Inc. v. Creta (In re
Creta), 271 B.R. 214, 219 (1st Cir. BAP 2002).
“Causation in fact” requires that the plaintiff’s reliance
on the misrepresentations be a “substantial factor in determining
the course of the conduct that results in [the] loss.”
Restatement § 546.
[Section 546] is concerned with the question of whether
the misrepresentation made by the defendant has caused
the plaintiff's loss at all.
...
If the misrepresentation has not in fact been relied
upon by the recipient in entering into a transaction in
which he suffers pecuniary loss, the misrepresentation
is not in fact a cause of the loss under the rule
stated in this Section. 	If the misrepresentation has
in fact induced the recipient to enter into the
transaction, there is causation in fact of the loss
suffered in the transaction; and the question becomes
one of whether the loss is of a kind for which the
maker is legally responsible.
Id., cmt. a.
“A fraudulent misrepresentation is a legal cause of a
pecuniary loss resulting from action or inaction in reliance upon
it if, but only if, the loss might reasonably be expected to
result from the reliance.” 	Id. § 548A.
Not all losses that in fact result from the reliance
are, however, legally caused by the representation. In
general, the misrepresentation is a legal cause only of
those pecuniary losses that are within the foreseeable
risk of harm that it creates.
...
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Page -44-
Pecuniary losses that could not reasonably be expected
to result from the misrepresentation are, in general,
not legally caused by it and are beyond the scope of
the maker's liability. This means that the matter
misrepresented must be considered in the light of its
tendency to cause those losses and the likelihood that
they will follow.
Id., cmts. a and b.
The distinction between these two types of causation is
found in Liebowitz v. Great American Group, Inc. (In re
Goldblatt’s Bargain Stores, Inc.), 559 F.3d 644, 647 (7th Cir.
2009). 	In Goldblatt’s the Debtor entered into an agreement with
Great American Group (“GAG”) to purchase inventory from two
stores it was closing. 	It was keeping four other stores open.
Under the agreement, GAG would buy the inventory for a percentage
of Debtor’s cost. 	An independent inventory service would then
value the inventory and, if GAG had overpaid, it would be
entitled to a refund of the overpaid amount. 	LaSalle Bank,
debtor’s lender, approved. 	Goldblatt’s, 559 F.3d at 646. 	Before
the transaction closed, for unstated reasons, Debtor transferred
an additional $450,000 of inventory to the two stores that were
to be closed. 	GAG knew of this transfer but did not inform
LaSalle. 	Id.
Later, Debtor decided to close its remaining stores and
entered the same agreement with GAG. 	Again LaSalle consented and
also agreed to reimburse GAG if it overpaid. 	The inventory
service determined that the inventory was worth $2 million less
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Page -45-
than represented. 	GAG sought a refund of approximately $1
million from LaSalle. 	LaSalle refused to pay on its
indemnification claiming that GAG had committed fraud. 	Id.
The bankruptcy court found that GAG had a duty to reveal the
inventory transfer. 	Id. 	Its silence constituted fraud. 	Id. at
647. 	But, the bankruptcy court also concluded that LaSalle would
not have acted any differently had it known of the transfer.
And, it concluded that LaSalle did not prove any loss from the
fact that the inventory was transferred. 	Id. 	The bankruptcy
court entered a $1.09 million judgment against LaSalle in favor
of GAG.
LaSalle appealed. 	The district court reversed, finding that
the fraud excused LaSalle’s performance. 	Id.
The Court of Appeals for the Seventh Circuit reversed the
district court and remanded for reinstatement of the bankruptcy
court’s judgment. 	It ruled as follows:
A legal remedy, whether rescission or damages, does not
follow automatically from the existence of a false
statement or material omission. 	There must be
reliance, which is often called transaction causation,
and injury, which is often called loss causation. 	See
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125
S.Ct. 1627, 161 L.Ed.2d 577 (2005). (Dura
Pharmaceuticals was decided under federal securities
law, but Illinois and most other states also follow
this approach.) 	See, e.g., Oliveira v. Amoco Oil Co.,
201 Ill.2d 134, 267 Ill.Dec. 14, 776 N.E.2d 151 (2002);
Restatement (Second) of Torts §§ 525, 546, 548A.) 	The
bankruptcy judge found that LaSalle Bank had not
demonstrated either transaction causation or loss
causation. 	It tried to show reliance by contending
that it would have insisted that Goldblatt's use a
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30 The Seventh Circuit commented that “loss causation” is the
same standard common law fraud rule borrowed for use in
securities fraud cases. 	Bastian, 892 F.2d at 683-84. 	It is an
instance of the common law’s requirement that a tort plaintiff
prove causation. 	Id. 	“No hurt, no tort.” 	Id. (Citation
omitted.) 	Since a securities law analysis of loss causation is
based on common law, that analysis should apply equally to common
law, non-securities law cases.
Page -46-
different liquidator had it known that Great American
Group had failed to reveal a material fact. 	The
bankruptcy judge did not believe this, however,
remarking that the evidence did not establish that any
other firm would have offered the Bank better terms-and
the Bank's obligations to its own investors demanded
that it take the best deal available. 	LaSalle Bank did
not even try to establish loss causation: It did not
contend that the omission had anything to do with the
sum that Great American Group wanted to recover, or
that the movement of inventory among stores reduced the
aggregate price received from the two sales to Great
American Group.
Id. at 648-49.
Another example of “loss causation” is found in the Seventh
Circuit securities fraud case 30 of Bastian v. Petren Resources
Corp., 892 F.2d 680 (7th Cir.), cert. denied, 496 U.S. 906
(1990). 	“In 1981 the plaintiffs invested $600,000 in oil and gas
limited partnerships promoted by the defendants. 	The plaintiffs
allege that, had it not been for the offering memoranda's
misrepresentations and misleading omissions concerning the
defendants' competence and integrity, the plaintiffs would not
have invested in these partnerships, which by 1984 were
worthless.” 	Id. at 682. 	The district court dismissed for
failure to allege “loss causation.”
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Page -47-
The Seventh Circuit described Plaintiff’s argument as
follows:
The plaintiffs argue that they should not be required
to allege that, but for the circumstances that the
fraud concealed, the investment that they were induced
by the fraud to make would not have lost its value.
They say it should be enough to allege that they would
not have invested but for the fraud; for if they had
not invested, they would not have lost their money, and
the fraud was therefore the cause of their loss. 	They
say they have no idea why their investment was wiped
out and it does not matter; the defendants, being
responsible for the disaster by having used fraud to
induce the investment, must not be allowed to get off
scot-free just because the plaintiffs do not know how
the investment would have fared in the marketplace had
the facts about the defendants' competence and
integrity been as represented. 	As a fallback position
the plaintiffs argue that the defendants should have
the burden of proving what part (if any) of the loss
would have occurred even if the defendants had been as
competent and honest as represented.
Id. at 683. 	The Court commented on plaintiff’s arguments:
The plaintiffs alleged that they invested in the
defendants' limited partnerships because of the
defendants' misrepresentations, and that their
investment was wiped out. 	But they suggest no reason
why the investment was wiped out. 	They have alleged
the cause of their entering into the transaction in
which they lost money but not the cause of the
transaction's turning out to be a losing one.
Id. at 684. 	The court rejected the arguments:
If the plaintiffs would have lost their investment
regardless of the fraud, any award of damages to them
would be a windfall.
...
“Loss causation” is an exotic name-perhaps an
unhappy one, for the standard rule of tort law that the
plaintiff must allege and prove that, but for the
defendant's wrongdoing, the plaintiff would not have
incurred the harm of which he complains. 	Like a
stock-market crash, the collapse of oil prices in the
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Page -48-
early 1980s reverberated throughout the economy. 	Since
the United States is a net importer of oil, the
reverberations were for the most part good ones. 	But
there were some losers. 	No social purpose would be
served by encouraging everyone who suffers an
investment loss because of an unanticipated change in
market conditions to pick through offering memoranda
with a fine-tooth comb in the hope of uncovering a
misrepresentation. 	Defrauders are a bad lot and should
be punished, but Rule 10b-5 does not make them insurers
against national economic calamities. 	If the
defendants' oil and gas ventures failed not because of
the personal shortcomings that the defendants concealed
but because of industry-wide phenomena that destroyed
all or most such ventures, then the plaintiffs, given
their demonstrated desire to invest in such ventures,
lost nothing by reason of the defendants' fraud and
have no claim to damages.
Id. at 684-85. (Citations omitted.) 	The Seventh Circuit affirmed
dismissal of the case.
The two cases discussed above indicate that a Plaintiff must
demonstrate a direct link between the misrepresentation and the
actual damages suffered. 	“But for” causation alone is not
enough. 	See, e.g., U.S. v. St. Louis University, 336 F.3d 294,
302 (4th Cir.), cert. denied, 540 U.S. 1050 (2003)(SLU's claim
against the government requires evidence of proximate cause in
addition to evidence of but-for causation.) 	See also Citibank,
N.A. v. K-H Corp., 968 F.2d 1489, 1496-97 (2nd Cir. 1992):
Citibank argues that under New York law, proximate
causation is satisfactorily pleaded in a suit for
common law fraud by a lender, when the lender alleges
that (a) it would not have financed a transaction
but-for the alleged misrepresentation, and (b) the
financing was not repaid.
...
We agree with the district court, however, that
Citibank did not adequately allege that the damages it
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Page -49-
suffered were proximately caused by the alleged
misrepresentations of Fruehauf and Kelsey-Hayes, and
that the fourth amended complaint failed to allege
adequately a causal connection between the
non-disclosure of the promissory note and the
subsequent decline in the value of the securities
pledged by Stoecker and GAIL as collateral to Citibank.
and Parker v. Grant (In re Grant), 237 B.R. 97, 118 (Bankr. E.D.
Va. 1999)(A doctor’s representation that he was married, made in
order to obtain a lease, was not a causal connection to later
physical damages and lost rents. 	“The damages complained of
rather appear to be the result of causes wholly unrelated to the
misrepresentation of marital status.”); and Kaufman v. Vamvakaris
(In re Vamvakaris), 197 B.R. 228, 230 (Bankr. E.D. Va. 1996)(A
debtor’s misrepresentation that he had insurance was not the
proximate cause of plaintiff’s loss, which was theft.) 	Compare
Hemi Group, LLC v. City of New York, N.Y., ___ U.S. ___, 130
S.Ct. 983, 989 (2010)(RICO case):
[T]o state a claim under civil RICO, the plaintiff is
required to show that a RICO predicate offense “not
only was a ‘but for’ cause of his injury, but was the
proximate cause as well.” [Holmes v. Securities
Investor Protection Corporation, 503 U.S. 258 (1992),]
at 268, 112 S.Ct. 1311. 	Proximate cause for RICO
purposes, we made clear, should be evaluated in light
of its common-law foundations; proximate cause thus
requires “some direct relation between the injury
asserted and the injurious conduct alleged.” 	Ibid. 	A
link that is “too remote,” “purely contingent,” or
“indirec[t]” is insufficient. 	Id., at 271, 274, 112
S.Ct. 1311.
In the case before the Court, Plaintiff has adequately
proved why it loaned the money, but has completely failed to
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Page -50-
prove how any misrepresentations caused its loss. 	Plaintiff was
aware of the high risk nature of the transaction, but
nevertheless proceeded with it. 	The Court finds that Plaintiff’s
loss was caused by the foreclosure of the Simms Building and not
by any representation made to it. 	Therefore, the Section
523(a)(2)(A) claim will be dismissed.
C. 	False Financial Statement, section 523(a)(2)(B).
The Court concludes that Plaintiff has not proved actual or
reasonable reliance on the financial statement by a preponderance
of the evidence. 	As discussed above, the Court found that
Plaintiff did not actually rely on anything represented by
Defendant. 	This also includes the personal financial statement.
Furthermore, the “red flags” discussed above apply equally to the
section 523(a)(2)(B) claim. 	See First Nat’l Bank v. Cribbs (In
re Cribbs), 327 B.R. 668, 675 (10 th Cir. BAP 2005), aff’d, 2006 WL
1875366 (10 th Cir. 2006)(Unpublished opinion.)(The court found no
reasonable reliance. 	“Despite obvious inconsistencies” in
financial statement the bank made no investigation. 	“A creditor
has a responsibility to ensure there exists some basis for
reliance on the debtor’s representations.”) (Citation omitted.)
There is another red flag concerning the personal financial
statement as well. 	Mr. McKinnon testified that he knew the
financial statement was out of date and that Defendant no longer
had any cash. 	Defendant had also told them he was out of cash,
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Page -51-
unable to pay his debts timely and was relying on the refinancing
of an asset that he did not even own (JTS Simms owned the
Property) to get him out of the bad situation in which he found
himself. 	This suggests big trouble. 	Furthermore, even a cursory
review of the financial statement would show that there were no
other sources of liquidity to repay debts. 	Any reliance by
Plaintiff would not have been reasonable.
Since Plaintiff could not establish actual or justifiable
reliance it cannot prove reasonable reliance, a higher standard,
on the same evidence. 	The Section 523(a)(2)(B) claim will also
be dismissed.
CONCLUSION
From an overall perspective, it is quite clear that
Plaintiff’s members viewed this proposal as an opportunity that
had virtually no downside. 	At worst, if Defendant performed,
Plaintiff would earn a 30% return on its $250,000 within 30 days,
or a 42% return within almost 32 days. 	At best, Defendant would
default and Plaintiff would obtain perhaps $3 million of equity
in the well known Simms Building for a mere $250,000. 	It was the
latter prospect in particular that dazzled Plaintiff’s members
and had them planning on where the offices for themselves and new
tenants would be located in the building – part of what they
characterized as “due diligence” – after they had committed the
funds and advanced the first $100,000. 	Indeed, Plaintiff’s Trial
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Page -52-
Exhibit 2, the agreement, is written almost as if Plaintiff was
already a part owner of the building. 	And this was why as well
the members did not record the transaction with the Bernalillo
County Clerk’s office, why they sent the letter to Silar
asserting they did not hold a lien on the Property (Defendants’
trial exhibit R), why the documentation did not reflect the $7
million mortgage lien of Silar, and perhaps why they overlooked
the fact that the promissory note was from JTS Properties rather
than JTS Simms. 	Plaintiff’s members were not neophytes, nor, to
their credit, did they claim to be. 	Whatever reliance the
members in reality placed on Defendant’s representations, it fell
far below anything that would support a ruling of justifiable or
reasonable reliance on the statements of Troy Baillio.
For all of the reasons stated, the Court will grant
Defendant’s oral motion to dismiss pursuant to Rule 52(c) and
dismiss this adversary proceeding by separate Order.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	September 21, 2010
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Page -53-
Copies to:
Chris W Pierce
Hunt & Davis, P.C.
2632 Mesilla St NE
Albuquerque, NM 87110
George M Moore
Moore, Berkson & Gandarilla, P.C.
PO Box 7459
Albuquerque, NM 87194
Case 08-01124-s Doc 22 Filed 09/21/10 Entered 09/21/10 14:08:02 Page 53 of 53