Marcott v. Luna et al

Therefore, the Court will also deny as moot Defendant1
Kristel Luna’s Motion for Judgment on the Pleadings. Doc 41.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re
PETER SIMON LUNA and
KRISTEL ROSE LUNA,
Debtors. No. 7-08-11422 SA
DARYL MARCOTT,
Plaintiff,
v. Adv. No. 08-1084 S
PETER SIMON LUNA and
KRISTEL ROSE LUNA,
Defendants.
MEMORANDUM OPINION ON
CROSS MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on cross motions for summary
judgment. Plaintiff appears through his attorney Wallin and
Briones Law Firm LLC (Brandon Huss and Thomas R. Briones).
Defendants appear through their attorney Michael K. Daniels.
This is a core proceeding to determine dischargeability of a
debt. 28 U.S.C. § 157(b)(2)(I). For the reasons set forth
below, Plaintiff’s complaint will be dismissed with prejudice .1
Plaintiff filed a First Amended Complaint to determine
dischargeability under 11 U.S.C. § 523(a)(2) on October 27, 2008.
Doc 10. Defendants answered on November 3, 2008. Doc 12. After
several pretrial conferences, discovery was set to close in
December, 2009. On December 15, 2009, Plaintiff filed a Motion
for Summary Judgment with accompanying Memorandum Brief and
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The exhibits are: 1) Promissory Note dated 12/22/2006, 2)2
Affidavit of Daryl Marcott, 3) Notice of default dated July 10,
2007 and related United States Post Office certified mail
receipt, 4) copies of responses to Plaintiff’s Interrogatories to
Defendants numbered 13, 14 and 15, and 5) copy of a mortgage from
Kristel R. Luna to Daryl L. Marcott dated July 9, 2007 for
property in Albuquerque, New Mexico (that lacks any recording
information) and a copy of a related Real Estate Mortgage Note.
That subsection provides:3
If a creditor requests a determination of
dischargeability of a consumer debt under subsection
(a)(2) of this section, and such debt is discharged,
the court shall grant judgment in favor of the debtor
for the costs of, and a reasonable attorney's fee for,
the proceeding if the court finds that the position of
the creditor was not substantially justified, except
that the court shall not award such costs and fees if
special circumstances would make the award unjust.
Defendants explain the purpose of this second Motion for4
Summary Judgment as follows:
Plaintiff filed a Motion for Summary Judgment on
December 15, 2009. Docket No. 45. That motion
expressly states it is focused on post default activity
by Defendants during late 2007, and does not cover the
inception of the loan. Defendants filed a response to
that summary judgment motion on December 18, 2009,
which included a cross motion for summary judgment in
their favor on the post default activity. Docket No.
46. The purpose of this motion is to focus on all
remaining allegations in the Complaint and First
Amended Complaint, which center on the inception of the
loan in December of 2006.
(continued...)
-2-
exhibits . Docs 45, 45-1. Defendants filed a Response to2
Plaintiff’s Motion for Summary Judgment and a Cross Motion for
Summary Judgment on December 18, 2009. Doc 46. In their
Response, Defendants asked for an award of costs and fees under
Section 523(d) . On December 18, 2009, Defendants also filed a3
Motion for Summary Judgment with exhibits . Doc 47. Again,4 5
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(...continued)4
Plaintiff agrees that his claim that the initial debt was
incurred by fraud is not dealt with in his Motion for Summary
Judgment. Doc 55, p. 7. He envisions a future trial to
determine whether the initial debt was incurred by fraud. Id.
The exhibits are: 1)Affidavit of Peter Luna (An unsigned5
affidavit of Peter Luna was attached to both Docs 46 and 47 as
Docs 46-1 and 47-1 respectively; Defendants obtained an Order
allowing substitution of exhibits, and the properly executed
affidavit now appears as Doc 53.), 2) Plaintiff Marcott’s Answers
to Defendant’s First Set of Interrogatories, 3) Plaintiff
Marcott’s Responses to Defendant’s First Set of Requests for
Production of Documents to Plaintiff (without attachments), and
4) Promissory Note dated 12/22/2006.
Bankruptcy Rule 7056 incorporates Fed.R.Civ.P. 56. These6
motions were filed in 2009. Rule 56, before its 2010 amendments,
provided:
Rule 56. Summary Judgment
(a) By a Claiming Party. A party claiming relief may
move, with or without supporting affidavits, for
summary judgment on all or part of the claim. The
(continued...)
-3-
Defendants asked for an award of costs and fees under Section
523(d). Plaintiff filed a Reply and then an Amended Reply in
Support of his Motion for Summary Judgment on February 17, 2010.
Doc 55. Plaintiff also filed a Response and then an Amended
Response to Defendants’ Motion for Summary Judgment on February
17, 2010. Doc 56. Defendants elected to not file a reply to
Plaintiff’s response.
Summary Judgment
Summary judgment is proper when there is no genuine issue as
to any material fact and the moving party is entitled to a
judgment as a matter of law. Bankruptcy Rule 7056(c) . In6
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(...continued)6
motion may be filed at any time after:
(1) 20 days have passed from commencement of the
action; or
(2) the opposing party serves a motion for summary
judgment.
(b) By a Defending Party. A party against whom relief
is sought may move at any time, with or without
supporting affidavits, for summary judgment on all or
part of the claim.
(c) Serving the Motion; Proceedings. The motion must
be served at least 10 days before the day set for the
hearing. An opposing party may serve opposing
affidavits before the hearing day. The judgment sought
should be rendered if the pleadings, the discovery and
disclosure materials on file, and any affidavits show
that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter
of law.
(d) Case Not Fully Adjudicated on the Motion.
(1) Establishing Facts. If summary judgment is
not rendered on the whole action, the court
should, to the extent practicable, determine what
material facts are not genuinely at issue. The
court should so determine by examining the
pleadings and evidence before it and by
interrogating the attorneys. It should then issue
an order specifying what facts--including items of
damages or other relief--are not genuinely at
issue. The facts so specified must be treated as
established in the action.
(2) Establishing Liability. An interlocutory
summary judgment may be rendered on liability
alone, even if there is a genuine issue on the
amount of damages.
(e) Affidavits; Further Testimony.
(1) In General. A supporting or opposing
affidavit must be made on personal knowledge, set
out facts that would be admissible in evidence,
and show that the affiant is competent to testify
on the matters stated. If a paper or part of a
paper is referred to in an affidavit, a sworn or
certified copy must be attached to or served with
the affidavit. The court may permit an affidavit
to be supplemented or opposed by depositions,
(continued...)
-4-
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(...continued)6
answers to interrogatories, or additional
affidavits.
(2) Opposing Party's Obligation to Respond. When
a motion for summary judgment is properly made and
supported, an opposing party may not rely merely
on allegations or denials in its own pleading;
rather, its response must--by affidavits or as
otherwise provided in this rule--set out specific
facts showing a genuine issue for trial. If the
opposing party does not so respond, summary
judgment should, if appropriate, be entered
against that party.
(f) When Affidavits Are Unavailable. If a party
opposing the motion shows by affidavit that, for
specified reasons, it cannot present facts essential to
justify its opposition, the court may:
(1) deny the motion;
(2) order a continuance to enable affidavits to be
obtained, depositions to be taken, or other
discovery to be undertaken; or
(3) issue any other just order.
(g) Affidavit Submitted in Bad Faith. If satisfied
that an affidavit under this rule is submitted in bad
faith or solely for delay, the court must order the
submitting party to pay the other party the reasonable
expenses, including attorney's fees, it incurred as a
result. An offending party or attorney may also be held
in contempt.
Fed.R.Civ.P. 56 (2009).
-5-
determining the facts for summary judgment purposes, the Court
may rely on affidavits made with personal knowledge that set
forth specific facts otherwise admissible in evidence and sworn
or certified copies of papers attached to the affidavits.
Fed.R.Civ.P. 56(e). When a motion for summary judgment is made
and supported by affidavits or other evidence, an adverse party
may not rest upon mere allegations or denials. Id. Rather,
“Rule 56(e) ... requires the nonmoving party to go beyond the
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-6-
pleadings and by her own affidavits, or by the ‘depositions,
answers to interrogatories, and admissions on file,’ designate
‘specific facts showing that there is a genuine issue for
trial.’” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
“Rule 56(e) permits a proper summary judgment motion to be
opposed by any of the kinds of evidentiary materials listed in
Rule 56(c), except the mere pleadings themselves.” Id. The
court does not try the case on competing affidavits or
depositions; the court's function is only to determine if there
is a genuine issue for trial. Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 249 (1986).
In ruling on a motion for summary judgment, the trial court
views the evidence and draws reasonable inferences therefrom in
the light most favorable to the nonmoving party. Mountain
Highlands, LLC v. Hendricks, 616 F.3d 1167, 1169-70 (10 Cir.th
2010)(citing Garrison v. Gambro, Inc., 428 F.3d 933, 935 (10th
Cir. 2005)). On those issues for which it bears the burden of
proof at trial, the nonmovant “must go beyond the pleadings and
designate specific facts so as to make a showing sufficient to
establish the existence of an element essential to [its] case in
order to survive summary judgment.” Id. at 1170 (quoting Cardoso
v. Calbone, 490 F.3d 1194, 1197 (10th Cir. 2007)) (internal
quotation marks omitted). “[F]ailure of proof of an essential
element renders all other facts immaterial.” Id. (quoting Koch
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On August 2, 2010, the United States Bankruptcy Court for7
the District of New Mexico adopted revised local rules. The
portion quoted in the text of this opinion is the former rule,
which was applicable when these motions were filed. The new rule
is substantively the same.
-7-
v. Koch Indus., Inc., 203 F.3d 1202, 1212 (10th Cir.), cert.
denied, 531 U.S. 926 (2000)).
New Mexico LBR 7056-1 governs summary judgment motions. It7
provides, in part:
The memorandum in support of the motion shall set
out as its opening a concise statement of all of the
material facts as to which movant contends no genuine
issue exists. The facts shall be numbered and shall
refer with particularity to those portions of the
record upon which movant relies.
A memorandum in opposition to the motion shall
contain a concise statement of the material facts as to
which the party contends a genuine issue does exist.
Each fact in dispute shall be numbered, shall refer
with particularity to those portions of the record upon
which the opposing party relies, and shall state the
number of the movant's fact that is disputed. All
material facts set forth in the statement of the movant
shall be deemed admitted unless specifically
controverted.
NONDISCHARGEABILITY
This adversary seeks to declare a debt nondischargeable
under Section 523(a)(2)(A), which provides:
A discharge under section 727 ... of this title does
not discharge an individual debtor from any debt--
...
(2) for money, property, services, or an extension,
renewal, or refinancing of credit, to the extent
obtained by--
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-8-
(A) false pretenses, a false representation, or actual
fraud, other than a statement respecting the debtor's
or an insider's financial condition[.]
Section 523(a)(2)(A) makes certain common-law torts
nondischargeable in bankruptcy. Field v. Mans, 516 U.S. 59, 69
(1995). “The operative terms in § 523(a)(2)(A), ... ‘false
pretenses, a false representation, or actual fraud,’ carry the
acquired meaning of terms of art. They are common-law terms,
and, ... in the case of ‘actual fraud,’ ... they imply elements
that the common law has defined them to include.” Id.
Therefore, the bankruptcy court should look to the common law of
torts for the elements of fraud. The Field court stated that the
most widely accepted distillation of the common law of torts was
the Restatement (Second) or Torts (1976). (“Restatement”). Id.
at 70.
The Restatement § 525 provides:
§ 525. Liability For Fraudulent Misrepresentation.
One who fraudulently makes a misrepresentation of fact,
opinion, intention or law for the purpose of inducing
another to act or to refrain from action in reliance
upon it, is subject to liability to the other in deceit
for pecuniary loss caused to him by his justifiable
reliance upon the misrepresentation.
The Court of Appeals for the Tenth Circuit recently stated
what a plaintiff must prove to succeed under Section 523(a)(2)(A)
in the Restatement § 525 context:
In order to establish a non-dischargeable claim
under this subsection, a creditor must prove the
following elements by a preponderance of the evidence:
“The debtor made a false representation; the debtor
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As noted by the Riebesell court in 586 F.3d at 789 n.3, the8
Supreme Court has determined that the proper standard is
“justifiable reliance” rather than “reasonable reliance.”
(citing Field v. Mans, 516 U.S. 59, 74 (1995).)
-9-
made the representation with the intent to deceive the
creditor; the creditor relied on the representation;
the creditor's reliance was reasonable; and 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).8
Johnson v. Riebesell (In re Riebesell), 586 F.3d 782, 789 (10th
Cir. 2009). In other words, the creditor must prove:
• a false representation,
• made with the intent to deceive,
• on which the creditor actually and justifiable relied, and
• the representation caused the creditor to sustain a loss.
STATEMENT OF FACTS
The Court has reviewed the answer to the complaint and the
parties’ responses to the various statements of undisputed facts.
Before launching into a listing of the facts, the Court reminds
the parties of Fed.R.Civ.P. 56(e)(2):
(2) Opposing Party's Obligation to Respond. When a
motion for summary judgment is properly made and
supported, an opposing party may not rely merely on
allegations or denials in its own pleading; rather, its
response must--by affidavits or as otherwise provided
in this rule--set out specific facts showing a genuine
issue for trial. If the opposing party does not so
respond, summary judgment should, if appropriate, be
entered against that party.
Fed.R.Civ.P. 56(e)(2) (2009)(amended 12/1/2010). See also NM LBR
7056-1 (Facts disputed by nonmovant must cite to record to
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The numbers in this column specify the paragraph in the9
complaint or, below, the number of the proposed undisputed fact
from a motion for summary judgment.
-10-
demonstrate dispute. Movant’s facts are deemed admitted unless
specifically controverted.) In determining the undisputed facts
in these motions, the Court enforced these rules strictly.
FACTS DERIVED FROM ANSWERS TO FIRST AMENDED COMPLAINT
Defendants admitted (doc 12) these allegations in
Plaintiff’s First Amended Complaint (doc 10):
1 . This Court has jurisdiction over the subject matter of this9
Complaint as a core proceeding pursuant to the provisions of
28 U.S.C. §§1334 and 157(b)(2)(I) and 11 U.S.C. §523 because
this is a proceeding to determine the dischargeability of a
particular debt.
2. Peter Simon Luna and Kristel Rose Luna (the “Defendants”)
filed a Voluntary Petition for Relief under Chapter 7 of
Title 11 of the United State Code (the “Code”) in this Court
on May 6, 2008.
4. The last day for filing dischargeability complaints has been
set at August 5, 2008. This Complaint has been timely
filed.
5. Plaintiff, Daryl Marcott, of 7405 Fairmont Ave El Cerrito,
CA 94530, is a creditor of the above-named debtor and is the
holder of an unsecured claim in the amount of $18,750.
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-11-
6. Defendant, Peter Simon Luna, of 1004 Tierra Viva Ct NW
Albuquerque, NM 87107, is the debtor in the above-captioned
proceedings.
7. Defendant, Kristel Rose Luna, of 1004 Tierra Viva Ct NW
Albuquerque, NM 87107, is the debtor in the above-captioned
proceedings.
8. On December 22, 2006, Plaintiff entered into a transaction
with defendant Peter Luna whereby Plaintiff loaned defendant
$12,300 in return for which, defendant gave Plaintiff a
promissory note for the sum of $15,000 and $3,750 in
interest for the first ninety days.
12. On July 09, 2007, defendant executed a Real Estate Mortgage
Note in the sum of $16,300 in satisfaction of the original
promissory note.
19. Thereafter Defendants filed their petition for relief under
Chapter 7 of Title 11 of the United States Code in the
United States Bankruptcy Court for the District of New
Mexico, and the defendant listed as one of their debts this
obligation due to Plaintiff.
The remaining facts in the Amended Complaint were denied.
FACTS ESTABLISHED BY DEFENDANTS’ RESPONSE TO PLAINTIFF’S
STATEMENT OF UNDISPUTED MATERIAL FACTS
Defendants did not dispute (doc 46) the following
Plaintiff’s Undisputed Material Facts (Doc 45-1):
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-12-
1. This Court has jurisdiction over the subject matter of
Plaintiff’s Complaint as a core proceeding pursuant to the
provisions of 28 U.S.C. §§ 1334 and 157(b)(2)(I) and 11
U.S.C. § 523 because this is a proceeding to determine the
dischargeability of a debt.
2. On December 22, 2006, Plaintiff Daryl Marcott (“Marcott”)
entered into a transaction with Defendant Peter Luna
(“Luna”) whereby Marcott loaned Luna $12,300 in return for
which Luna gave Plaintiff a promissory note in the sum of
$15,000 plus $3,750 in interest for the first 90 days.
3. The Promissory Note provided that Luna would pay three
monthly payments from December 30, 2006 through March 30,
2007 and would pay the entire amount of principal and
interest on or before March 6, 2007.
4. Luna did not repay the debt as required by March 6, 2007.
5. In June, 2007, Marcott sent a Notice of Default to Luna for
his failure to pay the amounts outstanding under the
Promissory Note and indicated that if the Note was not
repaid, a lawsuit would be filed to collect the amounts
owing.
6. After Peter and Kristel Luna (the “Lunas”) received the
Notice of Default, Marcott agreed to extend the time for
repayment in exchange for the Lunas providing a mortgage on
real property owned by Kristel Luna, which was located at
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In their response, Defendants admit that Peter Luna signed10
a Real Estate Mortgage Note but do not know the exact date this
occurred. Lacking a citation to the record, the entire fact is
deemed admitted. However, the Court finds that Plaintiff has
just created his own genuine fact issue. Fact 6 immediately
above states that Plaintiff agreed to extend the time for
repayment; fact 7 states that the Mortgage Note was in full
satisfaction of the original note. See also Plaintiff’s
Memorandum Brief, doc 45-1 p. 8. (“ ... a note to allow the Lunas
additional time to repay Marcott for the loan he had previously
given them.”) From the record it is generally unclear what the
parties’ understandings were.
In their response, Defendants admit that Marcott signed a11
Real Estate Mortgage Note but do not know the exact date this
occurred. Lacking a citation to the record, the entire fact is
deemed admitted.
-13-
2404 Rozinante Drive NW, Albuquerque, NM 87104 (“Real
Property”).
7. On July 9, 2007, Luna executed a Real Estate Mortgage Note
(“Mortgage Note”) in the sum of $16,300, which was to be in
satisfaction of the original promissory note.10
8. On July 10, 2007, Marcott also executed the Mortgage Note.11
9. On July 9, 2007, Kristel Luna executed the Mortgage before a
notary and sent by fascimile the signed Mortgage to Marcott.
10. Marcott could not record the Mortgage because the Lunas
never sent him the original Mortgage despite Marcott’s
repeated demands.
11. Marcott contacted Luna on many occasions by phone to get
Luna to record the Mortgage and Note. Each time Marcott
spoke to Luna, Luna would always give Marcott an excuse as
to why Luna did not record the Mortgage yet, including his
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This fact is nonsensical. By definition a short sale12
leaves nothing for the property owner.
A short sale is, in its simplest definition, a sale by
a willing seller to a willing buyer for less than the
total encumbrances on the home with the consent of the
underlying lienholders who agree to take less than what
they are owed. Short sales generally occur when the
value of the home is less than the total consensual
encumbrances. The lienholders do not generally waive
their deficiency balances in this process. When
properly executed, a short sale benefits the seller by
getting him or her out from under the constant fear and
stress of foreclosure. A short sale benefits the
lender by getting the distressed property sold quickly;
thereby allowing the lender to quantify its loss
without the time and expense of a foreclosure.
Rupp v. Ayres (In re Fabbro), 411 B.R. 407, 413 n. 7 (Bankr. D.
Utah 2009). How could Defendants pay Plaintiff from a sale which
yields them nothing?
In their response, Defendants admit they did not record13
the mortgage and do not respond to the rest of the undisputed
fact. The uncontroverted fact is deemed admitted.
-14-
belief that he was very close to selling the house in a
short sale so he would be paying Marcott back soon.12 13
14. The Lunas filed a voluntary petition for relief under
Chapter 7 of the Bankruptcy Code on May 6, 2008.
FACTS ESTABLISHED BY PLAINTIFF’S RESPONSE TO DEFENDANTS’
STATEMENT OF UNDISPUTED MATERIAL FACTS
Plaintiff’s Amended Response did not dispute (doc 56) the
following Defendants’ Undisputed Material Facts (doc 47):
1. On July 10, 2008, Plaintiff filed a complaint in the above
captioned adversary proceeding.
2. Plaintiff lent $12,300 to Defendant on December 22, 2006.
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Plaintiff’s Amended Response states “Plaintiff is without14
sufficient information to admit or deny the statement and
therefore deny the statement. This alleged undisputed fact is
irrelevant to any issue contained in the Motion.” The issue at
this stage is not whether Plaintiff lacks information; rather, it
is where in the record is there a fact contrary to that stated.
By failing to supply or indicate a contrary fact in the record,
this Proposed Fact is deemed admitted. Additionally, whether it
is relevant or irrelevant is not the issue. And, the Court
cannot understand how Plaintiff can claim this statement
irrelevant when in the First Amended Complaint ¶¶ 9, 10 and 13 he
alleges that Defendant Peter Luna used the name Veritas to
“entice” him into the loan transaction, that Veritas told
Plaintiff that Peter Luna was not acting within the scope of his
employment, and that Peter Luna represented that Veritas was a
borrower. In fact, the Court finds Defendant’s Veritas status
relevant.
Plaintiff’s response to this fact is the same as to fact15
3. This is insufficient and the fact is deemed admitted.
Additionally, this fact deals with Veritas and is relevant.
This fact is deemed admitted despite Plaintiff’s lack of16
information and denial because he cited no contrary fact in the
record.
-15-
3. Defendant was a contract employee of Veritas Mortgage at the
time of the loan.14
5. Defendant worked for Veritas Mortgage for approximately 25
months. Veritas Mortgage went out of business soon
afterward.15
6. Defendant lost personal funds invested with Vista Studios
Inc. soon after the loan from Plaintiff. Many other
investors, including officers of Veritas Mortgage and
friends and relatives of Defendant, also lost significant
sums invested in Vista Studios.16
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Again, mere denial for lack of information is insufficient17
to controvert the fact. This fact is deemed admitted.
Again, mere denial for lack of information is insufficient18
to controvert the fact. This fact is deemed admitted. And,
again, relevance is not the issue.
In their response, Defendants deny misleading Plaintiff in19
any way. However, Defendants also argue that Proposed Fact 12
consists of legal argument rather than a factual allegation. The
Court agrees. The proposed fact is also self-serving and does
not demonstrate a basis for how plaintiff knew what Defendants
intended or why they took the actions they did. And, as
discussed below, Plaintiff never describes or develops the
(continued...)
-16-
7. Subsequent to the lost investment in Vista Studios,
Defendants listed their home for sale. At the time they had
significant equity in the home, and hoped to sell it for
sufficient money to pay all their creditors. Soon
thereafter the real estate market crashed, and they were
unable to sell their home for anything in excess of the
secured debt. Ultimately the mortgagee foreclosed on the
home.17
8. After the real estate market crashed Defendants had no
choice but to file a personal bankruptcy.18
PROPOSED FACTS REJECTED BY THE COURT
The Court does not adopt the following facts proposed by
Plaintiff (doc 45-1) as undisputed.
12. The Lunas misled Marcott into believing that they would
provide him with a Mortgage on the real property in order to
have Marcott not sue them.19
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(...continued)19
circumstances under which an oral agreement was reached (if any
in fact was), what that agreement was, or his failure to pursue
legal remedies at the time of the nonpayment. The fact does not
specify what representations were made and why Plaintiff believes
they are false. In addition, Defendants’ Proposed Fact 7 was
deemed admitted. That fact establishes that there was sufficient
equity in the home to pay all creditors at the time. Therefore,
Plaintiff’s theory that Defendants misrepresented equity in the
house fails. It also defeats Plaintiff’s argument that
Defendants had a duty to inform him of their financial condition
and the lack of equity in the house.
In their response, Defendants deny making false20
representations, deny that Plaintiff relied on any such
representations if they existed, and deny that any such reliance
would be justifiable if it actually existed. Defendants also
argue that the proposed fact consists of legal argument and not
factual allegations. They also argue that Plaintiff has not
identified which statements were “false representations.” The
Court agrees. And, without this knowledge, the Court cannot find
actual reliance or justifiable reliance.
In their response, Defendants deny that Plaintiff suffered21
any damage in relation to the lack of a recorded mortgage. They
argue that the damages stemmed from a declining real estate
(continued...)
-17-
13. Marcott relied upon the false representations made by the
Lunas in not pursuing his legal remedies against them with
the understanding that the Lunas would provide him with a
mortgage on the real property.20
15. As a result of the Lunas’ failure to record the original
Mortgage or provide the original Mortgage to Marcott for
filing as they had promised to do, Marcott has suffered
damages in the amount of $18,750, plus pre-judgment and
post-judgment interest, reasonable attorneys’ fees, and
costs.21
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(...continued)21
market. Defendants also argue that Proposed Fact 15 consists of
legal argument instead of factual allegations. The Court agrees
that Proposed Fact 15 is an unsupported conclusory claim that the
lack of a recorded mortgage was the proximate cause of the
damages.
Plaintiff disputes this fact and cites to Plaintiff’s22
response to interrogatory 6, attached to Defendants’ Motion for
Summary Judgment at doc 47-2, p. 8. In fact, the response to
interrogatory 6 is totally unrelated to the proposed fact.
Interrogatory 6 asks Plaintiff to describe in detail the
circumstances under which any anticipated fact witness of his
ever interacted with either Defendant. The answer never mentions
Plaintiff in relation to Peter Luna. Perhaps Plaintiff is
referring to interrogatory 7, which asks Plaintiff to specify any
representations Plaintiff alleges either Defendant made to
Plaintiff at any time. The response states that Peter Luna
helped Plaintiff with a real estate matter in 2006. Possibly
Plaintiff is asserting that Peter Luna served as mortgage broker
for Plaintiff on only one real estate transactions. Therefore,
the Court will take proposed fact 4 as disputed. This finding,
however, is irrelevant to the Court’s ultimate ruling.
-18-
The Court does not adopt the following fact proposed by
Defendants (doc 47) as undisputed.
4. Defendant served as mortgage broker for Plaintiff on several
real estate transactions .22
DISCUSSION
First, the Court will make an additional comment on the
facts before the Court. Defendants proposed eight undisputed
material facts in their Motion for Summary Judgment. Doc 47.
Plaintiff’s Amended Response deals with those eight facts, then
propounds “Additional Disputed Facts” 9 through 12. Doc 56, pp.
3-4. The Court will disregard these additional facts.
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-19-
First, neither Federal Rule of Civil Procedure 56 or any
other rule authorizes a plaintiff to introduce new allegations or
previously unpled theories in response to the motion for summary
judgment. See Fed.R.Civ.P. 56(e)(2) (Non-movant’s “response
must--by affidavits or as otherwise provided in this rule--set
out specific facts showing a genuine issue for trial.”) See
also Huron v. Western Railroad Builders Corp., 856 F. Supp. 1538,
1543 (D. N.M. 1994):
In an effort to avoid summary judgment,
Plaintiff's Memorandum in Opposition to Defendant's
Motion for Summary Judgment refers to alleged
“additional acts by defendant causing injury.”
Plaintiff's Memorandum at 19. Specifically, Plaintiff
contends that the conductor is responsible for the
movement of the train and the safety of the crew and
that the conductor was negligent in not ensuring that
all crew members were within sight. Plaintiff also
contends that the train was being operated in a
negligent manner in that the brakeman was required to
enter between the cars every time a “cut” was required.
Finally, Plaintiff contends that he was ordered to make
the cut before the train had been brought to a complete
stop.
Despite having raised such contentions, the court
is not able to address them. As an initial matter,
Plaintiff has not alleged such acts of negligence in
his complaint. Moreover, the “additional acts” cited
in Plaintiff's memorandum do not reference, nor are
they supported by, affidavits, depositions, answers to
interrogatories or other evidence.
Second, courts that have dealt with this situation find that
attempted introduction of new materials at the summary judgment
stage is an attempt to file an amended complaint that is governed
by Fed.R.Civ.P. 15. Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir.
1994), cert. denied, 516 U.S. 810 (1995). At this stage of the
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Even if Plaintiff sought to amend the complaint, the23
request would probably be denied. The four additional facts were
all known, or should have been known, to Plaintiff before filing
the case. Plaintiff has already amended once. Discovery is
closed and dispositive motions are on file. “[L]ate amendments
to assert new theories are not reviewed favorably when the facts
and the theory have been known to the party seeking amendment
since the inception of the cause of action.” Kaplan, 49 F.3d at
1370 (quoting Acri v. International Ass'n of Machinists, 781
F.2d 1393, 1398 (9th Cir.), cert. denied, 479 U.S. 816 (1986)).
See also State Distributors, Inc. v. Glenmore Distilleries Co.,
738 F.2d 405, 416 (10th Cir. 1984):
In determining whether to allow amendment of a
complaint, the court typically considers several
factors. These include whether the amendment will
result in undue prejudice, whether the request was
unduly and inexplicably delayed, was offered in good
faith, or that the party had had sufficient opportunity
to state a claim and failed. E.g., Local 472, etc. v.
Georgia Power Company, 684 F.2d 721 (11th Cir. 1982).
Where the party seeking amendment knows or should have
known of the facts upon which the proposed amendment is
based but fails to include them in the original
complaint, the motion to amend is subject to denial.
See Svoboda v. Trane, 495 F.Supp. 367 (E.D. Mo. 1979),
aff'd 655 F.2d 898 (8th Cir. 1981).
See also Trotter v. Regents of Univ. of New Mexico, 219 F.3d
1179, 1185 (10th Cir. 2000)(“The decision to grant leave to amend
a complaint after the permissive period has ended is well within
the discretion of the trial court, particularly ‘when the party
seeking amendment [knew] or should have known of the facts upon
which the proposed amended [complaint] is based but failed to
include them in the original complaint.’ Pallottino v. City of
Rio Rancho, 31 F.3d 1023, 1027 (10th Cir. 1994).”); and Goewey by
Goewey v United States, 886 F.Supp. 1268, 1284 (D. S.C. 1995),
a’ffd., 106 F.3d 390 (4th Cir. 1997)(table), cert. denied, 522
U.S. 1045 (1998)( “Plaintiffs' attempt to amend their complaint
now, after the USA has filed its dispositive motions, appears to
be an eleventh hour attempt to evade a grant of summary judgment
(continued...)
-20-
adversary, Plaintiff may amend only with Defendants’ consent or
leave of court. Fed.R.Civ.P. 15(a)(2). Defendants have not
consented and Plaintiff has not sought leave to amend . And,23
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(...continued)23
by grasping at new legal theories. Moreover, these newly
developing theories are not based on newly discovered evidence or
intervening facts.”)
-21-
without amending, these new facts and theories are not properly
before the Court. Lawmaster v. Ward, 125 F.3d 1341, 1346 n. 2
(10th Cir. 1997)(refusing to consider claim not raised in
complaint). See also Davis v. Melcher (In re Melcher), 319 B.R.
761, 770 (Bankr. D. D.C. 2004) (Defendant filed a dispositive
motion and plaintiff responded with an affidavit mentioning four
incidents not previously pled that suggested a new theory. “In
any event, without having amended the complaint to specifically
allege that the Melchers deliberately decided to cut off Davis'
footer, the issue is not before the court.”)
Third, the allegations in Disputed Facts 9, 10 and 11 were
not disclosed in discovery. Plaintiff’s Disputed Fact 9 claims
that Peter Luna misrepresented to Plaintiff that he had the
authority to sign the note individually and on behalf of Veritas
Mortgage. Disputed Fact 10 states that Peter Luna misrepresented
his financial condition. Disputed Fact 11 states, without
elaboration or definition, that the Defendant signed the
promissory note in a “deceptive” way. Defendants’ First Set of
Interrogatories item 7, Doc 47-2, p. 9, asks Plaintiff to
identify specifically any misrepresentation either Defendant made
to Plaintiff at any time and, if the representation was in
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The promissory note appears in Defendant’s Motion for24
Summary Judgment, doc 47 exhibit 4. In fact, it is not on
Veritas Mortgage letterhead.
-22-
writing, to identify its location, description and summary of its
contents. Plaintiff’s answer omits any reference to the
misrepresentations alleged by Disputed Facts 9, 10 and 11. In
contrast, the answer states: “Pete made up a promissory note on
Veritas Mortgage letter head , and Mike Courtney, who was part24
of Veritas, made at least one payment to me, and all of
transactions and work came from that office, so I logically
believed it would be backed by Veritas Mortgage.” Plaintiff’s
logically formed belief is not a representation by Defendant.
And, the interrogatory answer does not refer to Defendants’
financial condition. Nor does it state that Defendants
misrepresented something by signing the note in a deceptive way.
Fourth, Disputed Facts 10 and 11 are irrelevant to a section
523(a)(2)(A) action. Regarding Fact 10, to be actionable, a
misrepresentation of financial condition must be in writing. See
Section 523(a)(2)(B). The answer to Interrogatory 7 makes no
reference to a writing. See also Field, 516 U.S. at 66:
The sum of all this history is two close statutory
companions [sections 523(a)(2)(A) and (B)] barring
discharge. One applies expressly when the debt follows
a transfer of value or extension of credit induced by
falsity or fraud (not going to financial condition),
the other when the debt follows a transfer or extension
induced by a materially false and intentionally
deceptive written statement of financial condition upon
which the creditor reasonably relied.
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-23-
and 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.) Regarding Fact 11,
Plaintiff attributes evil motive to the way the note was signed.
However, the law in New Mexico is that if a person signs a
contract that contains words that bind him personally, the fact
that to such signature is added additional words, such as
trustee, president, or agent, does not change the character of
the person signing, but are considered descriptive terms of the
signer. Ricker v. B-W Acceptance Corp., 349 F.2d 892, 894 (10th
Cir. 1965)(Applying New Mexico law). Therefore, listing Veritas
Mortgage as part of the address would only be considered a
descriptive term of Luna. This is especially true considering
that Veritas Mortgage is not otherwise mentioned in the note, the
note uniformly refers to “borrower” not “borrowers,” and it was
signed only once, as “Peter Luna”, not as “Peter Luna, agent
for:”. See also 7 Fletcher Cyc. Corp. § 3034:
[I]f there is no disclosure of the principal in the
body of the contract, the mere appending of words
descriptive of the signer as, for example, the word
“president,” is insufficient of itself to relieve the
signer of individual liability. Such words as “Pres.,”
“Vice Pres.” and “Secy.-Treas.” are personal
descriptions. Thus, the mere fact that individuals who
are officers of a corporation add their title to their
signatures to a contract made by them does not
necessarily make the contract binding on the
corporation.
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There are four motions on file.25
-24-
Therefore, the Court would not have found this as evidence of
evil intent in any event. See also Winburn v. McGuire Investment
Group, #17, 220 Ga.App. 384, 385, 469 S.E.2d 477, 478 (Ga. App.
1996)(A lease specifically identified two individual tenants and
the landlord. The inclusion of the words “Pres” and “VP” after
their signatures, combined with a notice address of “Fried-Win
Inc.” did not, as a matter of law, create an ambiguity as to who
the tenants were.) And, to the extent Plaintiff suggests that
the signature was obviously deceptive, this would disprove the
justifiability of his reliance.
Fifth and finally, Plaintiff’s Disputed Facts 9 through 12
do not provide an adequate reference to the record. For example,
Disputed Fact 10 cites to: “See, Complaint, Plaintiff’s Answers
to Interrogatories, and Defendants admissions in the Motion and
affidavit. See also argument infra.” It does not state which
motion contains admissions or where they occur. It also does25
not specify what statements in the Peter Luna affidavit are
admissions. “Rule 56 does not impose upon the district court a
duty to sift through the record in search of evidence to support
a party’s opposition to summary judgment.” Malacara v. Garber,
353 F.3d 393, 405 (5th Cir. 2003) (Citations omitted.) See also
Poss v. Morris (In re Morris), 260 F.3d 654, 665 (6th Cir.
2001)(“[T]he nonmoving party has an affirmative duty to direct
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See Plaintiff’s Motion for Summary Judgment, doc 45, p. 1.26
(“This Motion will demonstrate that there is no issue of material
fact and that the debt is nondischargeable as a matter of law
because Plaintiff justifiably relied upon Defendants’ intentional
misrepresentations, which caused Plaintiff to agree to an
extension of time for Defendants’ repayment after the debt was
originally due.”)
-25-
the court's attention to those specific portions of the record
upon which it seeks to rely to create a genuine issue of material
fact.”); Gamble, Simmons & Co. v. Kerr-McGee Corp., 175 F.3d 762,
773 (10th Cir. 1999)(“In the absence of sufficient citation to
record support for a party's allegations, we decline to search
for the proverbial needle in a haystack.”) Therefore, this Court
will also not search for support for the Disputed Facts.
Furthermore, Plaintiff’s reference to the Complaint and his
Answers to Interrogatories are just a rehash of his previous
allegations and arguments. A plaintiff cannot sit back and rely
on the pleadings when the Defendant has filed a properly
supported motion for summary judgment. Fed.R.Civ.P. 56(e).
Therefore, the Court does not consider the “Additional
Disputed Facts.” The Court now turns to the merits of the two
motions for summary judgment.
PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
As discussed above, Plaintiff’s Motion for Summary Judgment
seeks only partial judgment that the damages caused by the
extension of the loan past the due date are nondischargeable.26
“As such, a damages hearing may be held to determine the amount
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-26-
of damages sustained under the extension.” Plaintiff’s Amended
Reply, doc 55, p. 7. Defendants’ Cross-Motion, doc 46, is
essentially an objection to Plaintiff’s Motion for Summary
Judgment and a request for section 523(d) relief. The Cross-
Motion asserts two theories. First, it argues that Plaintiff’s
Motion for Summary Judgment does not allege a single specific
representation made by the Defendants to Plaintiff. Because a
misrepresentation is an essential element in a section
523(a)(2)(A) claim, Plaintiff cannot prevail. Second, it argues
that because the Plaintiff’s Motion restricts itself to events
after default, Plaintiff cannot show damages proximately caused
by representations or conduct that occurred eight months after
the funding of the loan.
Plaintiff’s Motion can be granted only if 1) he has
demonstrated that there are no genuine issues of material fact on
each element:
• a false representation,
• made with the intent to deceive,
• on which the creditor actually and justifiable relied, and
• the representation caused the creditor to sustain a loss;
and 2) Plaintiff has established that he is entitled to judgment
as a matter of law. Fed.R.Civ.P. 56. Plaintiff has not met this
burden.
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Bankruptcy Rule 7009 incorporates Fed.R.Civ.P. 9. Rule27
9(b) states: “In alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or
mistake. Malice, intent, knowledge and other conditions of a
person’s mind may be alleged generally.”
“To satisfy the particularity requirement of Rule 9(b), a
complaint must adequately specify the statements it claims were
false or misleading, give particulars as to the respect in which
plaintiff contends the statements were fraudulent, state when and
where the statements were made, and identify those responsible
for the statements.” Mabon, Nugent & Co. v. Borey, 127 B.R. 727,
736 (S.D. N.Y. 1991). See also Koch v. Koch Indus., Inc., 203
F.3d 1202, 1236 (10th Cir.), cert. denied, 531 U.S. 926 (2000)
(“More specifically, this court requires a complaint alleging
fraud to ‘set forth the time, place and contents of the false
representation, the identity of the party making the false
statements and the consequences thereof.’”)(quoting Lawrence
Nat'l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th
(continued...)
-27-
First, the Court cannot find a false representation. The
Motion specifically does not address any possible
misrepresentation that occurred at the inception of the loan in
December 2006. Plaintiff’s Memorandum Brief alleges that the
Lunas were unable to repay the loan when due. Doc 45-1, p. 8.
It does not claim that this was a false representation. The
Motion states that after default, Plaintiff agreed to extend the
time for repayment in exchange for a mortgage. It does not claim
that this was a false representation. In fact, Luna executed a
Real Estate Mortgage Note and Kristel Luna executed the Mortgage
before a notary. Doc 45-1, ¶¶ 7 and 9. Therefore, Plaintiff
must be claiming that the Defendants promised to record the
mortgage without the intention of doing so. The Motion does not
state this, however . Rather, it states “Luna would always give27
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(...continued)27
Cir.1991)). Neither Plaintiff’s Amended Complaint or Plaintiff’s
Motion meets the requirements of Rule 9(b). Summary judgment for
Defendants could be granted on this ground alone. Bank One
Delaware, N.A. v. Hamilton (In re Hamilton), 2004 WL 1898218 at
*3 (Bankr. D. Colo. 2004).
Furthermore, when there are multiple defendants, the
instances of fraud must be plead separately as to each defendant.
Mabon, Nugent & Co., 127 B.R. at 736; Koch, 203 F.3d at 1237.
Neither Plaintiff’s Amended Complaint or Plaintiff’s Motion
accomplish this.
The facts are even less clear after reading Plaintiff’s28
affidavit, doc 45-3, ¶ 7. (“I agreed to extend the time for
repayment only when both agreed to give me a new note and a
mortgage on real property.”)
-28-
Marcott an excuse as to why Luna did not record the Mortgage
yet.” The Motion also does not allege that these excuses were
misrepresentations. Instead it argues “had [Defendants] acted28
with good and honest intent, they would have either (a) recorded
the mortgage and note themselves or (b) provided the originals to
Marcott to record.” Doc 45-1, p. 8. However, because the Motion
does not state what the actual oral agreement was between the
parties, the Court is unable to determine who owed what duty to
whom. Plaintiff’s sense of honest intent does not mean that
Defendants’ actions or inactions were fraudulent. “[The Tenth
Circuit] has said that fraud ‘is never imputed or presumed and
the court should not sustain findings of fraud upon circumstances
which at the most create only suspicion.’” Houston Oilers, Inc.
v. Neely, 361 F.2d 36, 41 (10 Cir.), cert. denied, 385 U.S. 840th
(1966).
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-29-
Second, proof of intent to defraud is always a difficult
task when a plaintiff seeks summary judgment. See GMAC, Inc. v.
Coley (In re Coley), 433 B.R. 476, 493 and n. 24 (Bankr. E.D. Pa.
2010). And, in this case, the Court does not find that Plaintiff
established a lack of intent to repay when the Defendants agreed
to execute a mortgage or (if applicable) to record it. In fact,
Defendants did make payments on the debt when able to, and agreed
to Plaintiff’s demand to give a mortgage when there was equity in
the house sufficient to pay all creditors. A simple breach of
contract does not prove fraudulent intent. Williams v. Zachary
(In re Zachary), 147 B.R. 881, 883-84 (Bankr. N.D. Tex.
1992)(“Therefore, a mere breach of contract by the debtor without
more, does not imply existence of actual fraud for purposes of
the exception to discharge under § 523(a)(2)(A).”)(citing Leeb v.
Guy (In re Guy), 101 B.R. 961, 978 (Bankr. N.D. Ind. 1988));
First Baptist Church v. Maurer (In re Maurer), 112 B.R. 710, 713
(Bankr. E.D. Pa. 1990)(“It is well established that a finding of
fraud cannot be premised upon a mere breach of contract.
Instead, to be actionable as fraud, the plaintiff must establish
that the debtor entered into the contract with the intent of
never complying with its terms.”)(Citations omitted.) Compare
Coley, 433 B.R. at 493 (A misstatement in a debtor’s financial
statement is insufficient to establish that the debtor intended
to deceive the creditor.)
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-30-
Finally, Plaintiff did not establish that the lack of a
recorded mortgage caused him any damages at all. In his Amended
Reply, doc 55, p. 6, ¶ II(D), he states: “[A]s Plaintiff delayed
in collection of the debt and attempting to garnish Defendants’
wages or take other collection activities, Plaintiff has been
damaged. Further, Plaintiff was denied secured creditor standing
as opposed to unsecured creditor standing with respect to the
collateralized home.” Nothing in the record suggests that
Plaintiff was not free to commence collection activities at any
time. There was no formal forbearance agreement. The details of
the oral agreement between the Defendants and Plaintiff after
default are not in the record. As to garnishment, Plaintiff
would have had to pursue collection to a judgment before he could
garnish; his lack of a judgment is clearly not Defendants’ fault.
And, his secured status is only speculative. Bankruptcy Code
section 506(a)(1) provides:
An allowed claim of a creditor secured by a lien on
property in which the estate has an interest, or that
is subject to setoff under section 553 of this title,
is a secured claim to the extent of the value of such
creditor's interest in the estate's interest in such
property, or to the extent of the amount subject to
setoff, as the case may be, and is an unsecured claim
to the extent that the value of such creditor's
interest or the amount so subject to setoff is less
than the amount of such allowed claim. Such value
shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of
such property, and in conjunction with any hearing on
such disposition or use or on a plan affecting such
creditor's interest.
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-31-
Therefore, the mere possession of a mortgage does not ipso facto
mean the creditor is secured. The creditor is secured only to
the extent there is equity to support the claim. Peter Luna’s
affidavit, doc 53, p. 3, ¶¶ 21 and 22, demonstrates that there
was no equity in the property over and above prior liens after it
had remained on the market for an extended time period. This
suggests that Plaintiff, even if the mortgage had been recorded,
would have remained unsecured and obtained nothing from the
property when it ultimately was foreclosed upon. In other words,
all the damages were incurred by the time Defendants told
Plaintiff that they could not repay the loan. The damages were
incurred because Defendants could not repay. No damages flowed
from the extension.
Section 523(a)(2)(A) requires that a plaintiff prove, as an
element, that the damage was caused by the misrepresentation.
Riebesell, 586 F.3d at 789 (“[A] creditor must prove ... the
debtor’s representation caused the creditor to sustain a loss.”).
See also Restatement § 525 (“One ... is liable to the other in
deceit for pecuniary loss caused to him by his justifiable
reliance upon the misrepresentation.”) Plaintiff argues that
under John Deere Co. v. Gerlach (In re Gerlach), 897 F.2d 1048,
1051 (10 Cir. 1990), that dischargeability is an “all orth
nothing” proposition, and that an extension of a loan based on
fraud renders the entire debt nondischargeable. The Court
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-32-
disagrees with this broad interpretation of Gerlach. First,
although the Gerlach court made that statement, it later referred
to the legislative history of section 523(a)(2) and quoted:
If an initial loan is made subject to a false financial
statement and new money is advanced under a subsequent
loan that is not made under conditions of fraud or
false pretenses, then only the initial amount of the
loan made on the original financial statement is
invalidated and excepted from discharge. On the other
hand, where the original financial statement is made
under nonfraudulent conditions and the entire loan in
addition to new money is advanced under a subsequent
false financial statement, the entire loan is made
under fraudulent conditions.
Id. In this case, Marcott made no subsequent advances.
Furthermore, Gerlach’s statement that dischargeability is an “all
or nothing” proposition is belied by that court’s remand “for a
determination of the amount of defendant’s guaranty debt to John
Deere that was obtained through defendant’s fraud.”
In 1998 the United States Supreme Court clarified the
meaning of “to the extent obtained by” in section 523.
Moreover, the phrase “to the extent obtained by” in §
523(a)(2)(A), as the Court of Appeals recognized, does
not impose any limitation on the extent to which “any
debt” arising from fraud is excepted from discharge.
“[T]o the extent obtained by” modifies “money,
property, services, or ... credit”-not “any debt”-so
that the exception encompasses “any debt ... for money,
property, services, or ... credit, to the extent [that
the money, property, services, or ... credit is]
obtained by” fraud. The phrase thereby makes clear
that the share of money, property, etc., that is
obtained by fraud gives rise to a nondischargeable
debt. Once it is established that specific money or
property has been obtained by fraud, however, “any
debt” arising therefrom is excepted from discharge.
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-33-
Cohen v. de la Cruz, 523 U.S. 213, 218 (1998). In other words,
if a debt is made up of several “shares” and one share is money
or property obtained by fraud, the other shares are
dischargeable. But the share obtained by fraud, and all debts
arising from and related to that share (e.g., punitive or treble
damages) are nondischargeable. See also Archer v. Warner, 538
U.S. 314, 325-26 (2003)(Thomas, J., dissenting):
In interpreting [section 523(a)(2)], the Court has
recognized that, in order for a creditor to establish
that a debt is not dischargeable, he must demonstrate
that there is a causal nexus between the fraud and the
debt. See Cohen v. de la Cruz, 523 U.S. 213, 218, 118
S.Ct. 1212, 140 L.Ed.2d 341 (1998) (describing §
523(a)(2)(A) as barring discharge of debts “ ‘resulting
from’ ” or “ ‘traceable to’ ” fraud (quoting Field v.
Mans, 516 U.S. 59, 61, 64, 116 S.Ct. 437, 133 L.Ed.2d
351 (1995))). Indeed, petitioners conceded at oral
argument that the “obtained by” language of § 523(a)(2)
requires a creditor to prove that a debtor's fraud is
the proximate cause of the debt. Tr. of Oral Arg. 10,
12; see also 1 Am.Jur.2d, Actions § 57, p. 760 (1994)
(“What is essential is that the wrongful act charged be
the proximate cause of the damage; the loss must be the
direct result of, or proximately traceable to, the
breach of an obligation owing to the plaintiff”
(emphasis added)).
Case 08-01084-s Doc 58 Filed 01/18/11 Entered 01/18/11 10:49:36 Page 33 of 41

See, e.g., McCrory v. Spigel (In re Spigel), 260 F.3d 27,29
32-33 (1 Cir. 2001):st
Reading [section 523(a)(2)(A)] to require ... a direct
link [between the alleged fraud and the creation of the
debt] is supported by the legislative history. Prior
to 1984, some courts had interpreted § 523(a)(2)(A) as
preventing the discharge of an entire debt even though
the fraudulent conduct of the debtor was directly
related only to a part of that debt. See, e.g.,
Birmingham Trust Nat'l Bank v. Case, 755 F.2d 1474,
1477 (11th Cir. 1985) (holding that debtor's
misrepresentations regarding ownership of collateral
caused entire debt, rather than just the value of the
collateral, to be nondischargeable). Congress
responded by adding “to the extent obtained by” to §
523(a)(2), Pub.L. 98-353 § 454(a)(1)(B), a change that
other courts have interpreted as “expressly limit[ing]
the exception to discharge to the extent that [the
debt] was actually obtained by the fraudulent conduct.”
Muleshoe State Bank v. Black, 77 B.R. 91, 92 (N.D.
Texas 1987); see also Nova Home Health Servs., Inc. v.
Casagrande, 143 B.R. 893, 899 n. 6 (Bankr. W.D. Mo.
1992). Thus, in order to prevail in the adversary
proceeding, the McCrorys must show that the debt Spigel
owes to them “arises as a direct result of the debtor's
misrepresentations or malice.” Century 21 Balfour Real
Estate [v. Menna], 16 F.3d [7] at 10 [(1 . Cir.st
1993)].
(Incidentally, Gerlach also cites Birmingham Trust Nat’l Bank for
the “all or nothing” proposition. 897 F.2d at 1051.); McClellan
v. Cantrell, 217 F.3d 890, 894 (7 Cir. 2000)(“[S]ectionth
523(a)(2)(A) is intended to reach fraud in the inception of a
debt–- fraud that created the debt.”); Fetty v. DL Carlson
Enterprises, Inc. (In re Carlson), 426 B.R. 840, 857 (Bankr. D.
Idaho 2010):
Based on the language of § 523(a)(2)(A) and the Supreme
Court's ruling in Cohen, a plaintiff must show the
“specific money or property” a debtor obtained by
fraud. It follows that, “[i]f the property or services
were obtained before the making of any false
representation, subsequent misrepresentations will have
no effect on dischargeability.” 4 Collier on
Bankruptcy ¶ 523.08[1][d] at 523-45 (Alan N. Resnick &
Henry J. Sommer eds., 16th ed.2009).;
(continued...)
-34-
In light of these, and many cases following similar reasoning ,29
Case 08-01084-s Doc 58 Filed 01/18/11 Entered 01/18/11 10:49:36 Page 34 of 41

(...continued)29
Rescuecom Corp. v. Khafaga (In re Khafaga), 419 B.R. 539, 547-48
(Bankr. E.D. N.Y. 2009)(Plaintiff’s damages occurred at the time
of the breach. Subsequent concealment of information and alleged
false pretenses were irrelevant. Plaintiff would have been in
the same situation either way. Debt was discharged.); Sandia
Laboratory Federal Credit Union v. Torrez (In re Torrez), 415
B.R. 842, 848 (Bankr. D. N.M. 2009)(No new money was advanced as
a result of the alleged misrepresentations. Therefore, they did
not “cause” anything. Damages were caused by Defendants’ overall
financial condition combined with a declining real estate
market.)
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the Court finds that even if Defendants misrepresented something
at the time of the extension, no damages flowed from that
misrepresentation. In other words, that misrepresentation would
not have been the proximate cause of the damages.
The Court will enter an Order denying Plaintiff’s Motion for
Summary Judgment.
DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
While Plaintiff’s Motion for Summary Judgment sought only
partial judgment for damages caused by the extension of the loan
past the due date, Defendants seek summary judgment as to the
entire complaint based on a single theory: Plaintiff has no
evidence that either Defendant made a misrepresentation. See Doc
47, p. 5.
Misrepresentation is an element Plaintiff must establish to
prevail on a § 523(a)(2)(A) complaint. Riebesell, 586 F.3d at
789. When a defendant points out a total lack of evidence to
support a necessary element of plaintiff’s case, the plaintiff
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Plaintiff’s Amended Response is confused on this point.30
Doc 56, p. 5. (“Defendants limit their entire Motion to that one
element [misrepresentation] of a 523 claim. Therefore,
Defendants have not illustrated any basis for the granting of a
Rule 56 Motion.”) This is incorrect. This is exactly the
situation in which the Court dismisses the case. See Koch, 203
F.3d at 1212 (“[F]ailure of proof of an essential element renders
all other facts immaterial.”) See also Plaintiff’s Amended
Reply, doc 55, p. 8. (“Defendants’ argument, at best,
illustrates that the separate issue of procurement by false
pretenses may need to be further litigated.”) The Court
disagrees. Defendants pointed out the lack of evidence of any
misrepresentation. Absent a misrepresentation, further
litigation is unwarranted.
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cannot rely on the allegations in the pleadings. Fed.R.Civ.P.
56(e)(2). Rather, plaintiff must point to specific evidence in
the record or put this specific evidence into the record to
defeat the defendant’s motion for summary judgment. Id.30
Plaintiff did not meet the challenge.
The Court reviewed the file for the existence of allegations
of misrepresentations. The following table summarizes that
review.
Complaint, doc 10,
paragraph number and
allegation
Comment (Note: superscripts
reference endnotes at bottom of
opinion.)
¶9 Peter Luna claimed
he had a business
opportunity, needed
to borrow money, and
used the name and
reputation of
Veritas Mortgage.
Denied in answer. Therefore, not
an established fact. However,
later Defendants did establish
Peter Luna was an employee of
Veritas, he had a business
opportunity and he needed to borrow
money. Luna affidavit, doc 53, ¶¶
2,3,7,8, and 11. Plaintiff offered
no contrary evidence. This doesa
not establish in the record a
misrepresentation.
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¶10 Plaintiff later was
informed by Veritas
Mortgage that Peter
Luna was not acting
within the course
and scope of his
employment.
Denied in answer. Furthermore,
this is hearsay and the speaker is
not identified. It is also not a
representation by Defendants.
Therefore, not an established fact.
However, Luna affidavit ¶¶ 2 and 3
establish he was an employee.
Plaintiff offered no further
evidence to establish the
allegation.
¶11 Peter Luna informed
Plaintiff that the
investment “did not
work out” and the
note would be
satisfied at the
sale of Defendants’
home.
Denied in answer. Therefore, not
an established fact. There is no
evidence that the investment “did”
work out. There is also no
evidence that the note would not be
satisfied at the sale of the home.
As it turned out, the note was not
satisfied at that time. But, a
promise regarding a future event is
generally not a representation.b
Plaintiff would need to prove that
Defendants did not intend to pay at
the time they made that
representation , and there is noc
evidence of this in the record. In
fact, there is no evidence of the
oral agreement in the record at
all.
¶13 He stated that
Veritas Mortgage was
a borrower and he
was authorized to
enter into the
transaction on their
[sic, its] behalf.
Denied in answer. Therefore, not
an established fact. Peter Luna’s
affidavit ¶¶ 2 and 3 establish he
was an employee. Plaintiff
offered no further evidence to
establish the allegation.
¶14 Defendant Kristal
Luna knew that there
was no equity in the
home and Defendants
had no intention to
repay plaintiff.
Denied in answer. Therefore, not
an established fact. Plaintiff
offered no further evidence to
establish the allegation.
In summary, Plaintiff alleges many misrepresentations.
Defendants denied all of them and filed a motion for summary
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judgment. Plaintiff demonstrated no contrary evidence and rested
on its allegations. Defendants’ Motion for Summary Judgment is
well taken. The Court will enter an Order dismissing the
complaint with prejudice.
DEFENDANTS’ § 523(d) CLAIM
Defendants requested relief under Section 523(d) if they
prevailed in this case. That section provides:
If a creditor requests a determination of
dischargeability of a consumer debt under subsection
(a)(2) of this section, and such debt is discharged,
the court shall grant judgment in favor of the debtor
for the costs of, and a reasonable attorney's fee for,
the proceeding if the court finds that the position of
the creditor was not substantially justified, except
that the court shall not award such costs and fees if
special circumstances would make the award unjust.
In Household Bank, N.A. v. Sales (In re Sales), 228 B.R.
748, 752 (10 Cir. BAP 1999), the Court stated:th
Under section 523(d), if the debtor shows that the
creditor filed a dischargeability action under section
523(a)(2), the debt sought to be discharged is a
“consumer debt,” and that the debt was discharged, the
burden shifts to the creditor to show that its position
was “substantially justified” or, if not, that “special
circumstances” would make an award “unjust.” If, in
the bankruptcy court's discretion, it finds that the
position of the creditor was not substantially
justified and that there are no special circumstances
that would make the award unjust, it is required, as
argued by the debtor, to award fees and costs to the
debtor under section 523(d).
(Citations omitted).
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“The term “consumer debt” means debt incurred by an31
individual primarily for a personal, family, or household
purpose.” 11 U.S.C. § 101(8).
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This adversary proceeding was brought under Section
523(a)(2). The debt at issue was a consumer debt . See Luna31
affidavit, doc 53, ¶ 11 (“The purpose of the loan was to enable
me to pay my current living expenses. The loan was necessary
because I was behind on my personal mortgage and on many other
personal obligations in December of 2006.”) The Court is
dismissing the proceeding. Therefore, the burden has shifted to
Plaintiff to show that its position was “substantially justified”
or, if not, that “special circumstances” would make an award
“unjust.” The Court will enter an Order setting a deadline for
1) for Defendants to file a statement of fees and costs incurred
to date, accompanied by time records redacted as needed to
protect the attorney-client and work product privileges, and 2)
for Plaintiff to submit a statement of relevant proposed facts
relating to justification, to which Defendants may respond. The
Court can then conduct a hearing, if necessary, to resolve the
issue.
Honorable James S. Starzynski
United States Bankruptcy Judge
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a. Regarding the “business opportunity,” Plaintiff states:
“Defendant has attached an affidavit containing a story about his
investment in Vista Studios. Defendant has offered no evidence
of his alleged investment in Vista Studios or even of its
existence.” Amended Response, doc 56, p. 6. Peter Luna’s
affidavit, doc 53, ¶ 8, specifically states that Peter Luna
invested $10,000 in Vista Studios. This is sufficient and
competent evidence to support a motion for summary judgment.
Instead of citing to or providing some evidence that actually
contradicts this evidence, Plaintiff essentially calls Defendant
a liar. This is not adequate. See Frishberg v. Janac (In re
Janac), 407 B.R. 540, 550 (Bankr. S.D. N.Y. 2009)(“Plaintiff
cannot meet his burden on summary judgment by speculating on what
he might have done if he had believed something other than what
Defendant told him ..., or by proposing to offer hearsay and
character evidence to show that Defendant is a liar or a con
artist.”)
In the Amended Response, doc 56, p. 6, Plaintiff also
states: “Defendant Luna also told Plaintiff that the purpose of
the loan was to allow Peter Luna could [sic] take advantage of a
business opportunity in some alleged movie studios”, and cites to
the Amended Complaint, ¶ 9. But, ¶ 9 was denied. And,
Plaintiff’s affidavit does not address events taking place before
the loan went into default. Therefore, there is not a shred of
evidence in the record to support this claim. The Court also
notes that this claim is 1) not in the Amended Complaint and 2)
not disclosed in Plaintiff’s answers to discovery.
Date Entered on Docket: January 18, 2011
Copies to:
Brandon Huss
Wallin & Briones Law Firm, LLC
8500 Menaul Blvd NE
Albuquerque, NM 87112
Thomas R Briones
4263 Montgomery Blvd NE
Ste I-140
Albuquerque, NM 87109-6747
Michael K Daniels
PO Box 1640
Albuquerque, NM 87103-1640
ENDNOTES
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b. See, e.g., Kuper v. Spar (In re Spar), 176 B.R. 321, 327
(Bankr. S.D. N.Y. 1994)(citing cases). See also Garaza v. Baker
(In re Baker), 139 B.R. 692, 694 (Bankr. N.D. Ohio 1992)(“[A]
mere promise as to future conduct is not sufficient to make a
debt nondischargeable, even though there is no excuse for the
subsequent breach.”)
c. See General Electric Capital Corp. v. Acosta (In re Acosta),
406 F.3d 367, 372 (5th Cir. 2005)(Debtor must know that statement
is false at the time.) Accord Allen v. Romero (In re Romero),
535 F.2d 618, 622 (10th Cir. 1976)(Debtor must have “knowledge of
falsity” when making the representation.)(decided under former
law).
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