Sharareh et al v. Wickens et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
LOUISE L. WICKENS,
Debtor. 	No. 7-07-13117 SA
SHAHIN SHARAREH and
NM ACCOUNTING SPECIALISTS, INC.
Plaintiffs,
v. 	Adv. No. 08-1040 S
RICHARD B. WICKENS and
LOUISE L. WICKENS,
Defendants.
MEMORANDUM OPINION ON PLAINTIFFS’
MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Plaintiffs’ Motion for
Summary Judgment (“Motion”)(doc 20) with accompanying Affidavit
of Shahin Sharareh (doc 21), Defendants’ Response to Plaintiffs’
Motion for Summary Judgment (doc 22), Plaintiffs’ Reply (doc 23)
and Supplemental Affidavit of Shahin Sharareh (doc 24). 	This
adversary proceeding is a complaint to determine dischargeability
of a debt under 11 U.S.C. § 523(a)(2) and is a core proceeding
under 28 U.S.C. § 157(b)(2)(I). 	For the reasons set forth below,
the Court finds that the Motion for Summary Judgment should be
denied.
STANDARD
Summary judgment is governed by Fed.R.Bankr.P. 7056, which
incorporates Fed.R.Civ.P. 56. 	Summary judgment is proper only
“if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that
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the moving party is entitled to a judgment as a matter of law.”
Fed.R.Civ.P. 56(c). 	When ruling on a motion for summary
judgment, the Court must view all facts and inferences in the
light most favorable to the nonmoving party. 	Selenke v. Medical
Imaging of Colorado, 248 F.3d 1249, 1255-56 (10 th Cir. 2001);
Wiley v. United States, 20 F.3d 222, 224 (6 th Cir. 1994)(citing
Taft Broadcasting Co. v. United States, 929 F.2d 240, 248 (6 th
Cir. 1991)).
The movant bears the initial burden of making a prima
facie demonstration of the absence of a genuine issue
of material fact and entitlement to judgment as a
matter of law. 	See Mitchell v. City of Moore,
Oklahoma, 218 F.3d 1190, 1197 (10th Cir. 2000). 	If the
movant carries this initial burden, the burden shifts
to the nonmovant “to go beyond the pleadings and set
forth specific facts, identified by reference to
affidavits, deposition transcripts, or specific
exhibits incorporated therein,” from which a rational
trier of fact could find for the nonmovant. Id.
Whitesel v. Sengenberger, 222 F.3d 861, 867 (10 th Cir. 2000).
Affidavits, if used, must be based on personal knowledge.
Fed.R.Civ.P. 56(e) (“[s]upporting and opposing affidavits shall
be made on personal knowledge.”) “Under the personal knowledge
standard, an affidavit is inadmissible if the witness could not
have actually perceived or observed that which he testifies to.”
Argo v. Blue Cross and Blue Shield of Kansas, Inc., 452 F.3d
1193, 1200 (10 th Cir. 2006)(citing United States v. Sinclair, 109
F.3d 1527, 1536 (10 th Cir. 1997)) (internal punctuation omitted.)
And, therefore, statements of mere belief in an affidavit must be
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disregarded. 	Id. (citing Tavery v. United States, 32 F.3d 1423,
1427 n.4 (10 th Cir. 1994)). 	Similarly, conclusory and self-
serving affidavits are insufficient. 	Hall v. Bellmon, 935 F.2d
1106, 1111 (10 th Cir. 1991).
Hearsay evidence cannot be considered on a motion for
summary judgment. 	Wiley, 20 F.3d at 226. 	Any documentary
evidence submitted in support of summary judgment must either be
properly authenticated or self-authenticating under the Federal
Rules of Evidence. 	Goguen v. Textron, Inc., 234 F.R.D. 13, 16
(D. Mass. 2006).
THE COMPLAINT AND ANSWER
The Defendants admit all the allegations regarding the
identities of the parties and the Court’s jurisdiction. 	Under
the complaint’s General Allegations, Defendants admit that R.
Wickens is or was an officer, director, stockholder, and employee
of Real Turf and Putting Greens, Inc. (“Real Turf”)(a New Mexico
corporation owned either 50 or 100% by Defendants) and that R.
Wickens and Real Turf are insiders of each other. 	Defendants
deny that R. Wickens asked Plaintiffs to loan him money for use
in Real Turf, deny that numerous representations of fact were
made regarding various assets of R. Wickens or Real Turf, and
deny that any loans were made “in reliance upon the
representations”. 	They do admit, however, that Real Turf
received loans in the amounts listed on the dates listed,
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totaling $475,000.00. 	The Defendants deny that R. Wickens is
liable on the loans. 	Count I claims that the loan amounts, plus
interest, are nondischargeable under 11 U.S.C. § 523(a)(2)(A).
Defendants deny every allegation in Count I. 	Count II claims
that the loan amounts, plus interest, are nondischargeable under
11 U.S.C. § 523(a)(2)(B). 	Defendants deny every allegation in
Count II.
THE MOTION FOR SUMMARY JUDGMENT
The Motion lists 32 material facts Plaintiffs claim are
undisputed. 	The Motion is supported by the affidavit of Shahin
Sharareh, which roughly has one paragraph per proposed undisputed
fact. 	Among the exhibits attached to the affidavit are: Real
Turf’s 2005 tax return (Exhibit A), Real Turf’s June 30, 2006
balance sheet (Exhibit B), Real Turf’s Income Statement for the
six months ending June 30, 2006 (Exhibit C), Real Turf’s December
31, 2006 balance sheet (Exhibit D), Real Turf’s Income Statement
for the 12 months ending December 31, 2006 (Exhibit E)(with an
additional page of posting information) and a Commitment Report
from the Bank of Albuquerque (Exhibit F).
Defendants did not choose to attach counter-affidavits to
their response to the Motion. 	Rather, they point to deposition
excerpts from Shahin Sharareh’s deposition to illustrate that
there are discrepancies that yield questions of fact.
Specifically, Defendants dispute facts 11, 12, 14, 16, 17, 18,
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1By not affirmatively controverting the other facts they are
deemed undisputed by N.M. L.B.R. 7056-1. 	See Fed.R.Civ.P.
56(d)(1) (“The facts so specified must be treated as established
in the action.”)
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19, 20, 25 and 32. 1 	Each dispute will be discussed.
Furthermore, Defendants argue that Plaintiffs have not alleged in
their motion all of the necessary elements to support a judgment
of dischargeability and that therefore the “undisputed facts” are
not present.
FACT 11
Fact 11 states “[i]n addition, not long before Sharareh made
Sharareh Loan #1 and NMAS made the NMAS loan, NMAS had prepared,
from information provided by R. Wickens, Real Turf’s 2005 federal
income tax return, a copy of which is attached as Exhibit A to
the Sharareh Affidavit.” 	The fact refers to Affidavit ¶ 12,
which is identical.
Defendants argue that three deposition excerpts suggest that
the information in Real Turf’s 2005 tax return came from
employees of NMAS and not from Mr. Wickens. 	They also argue that
the entire deposition does not once state that R. Wickens gave
false information to Mr. Sharareh. 	Arguably, Defendants show an
issue of fact here. 	The Court is not to weight credibility at
summary judgment, just determine if there is a disputed material
fact. 	The Court finds that there is a question regarding who
actually prepared the information from which the books were
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prepared, and whether Defendants somehow affirmatively adopted
this information as accurate.
FACT 12
Fact 13 states “The 2005 Tax Return contains a balance
sheet, which R. Wickens told me was accurate, and contained
information supplied by R. Wickens.” 	The fact refers to
Affidavit ¶ 13, which is identical.
Defendants have the same argument as for Fact 11. 	And, the
Court finds the same fact question.
FACT 14
Fact 14 states “[b]efore Sharareh made Sharareh Loans ## 2
and 3, R. Wickens made the same oral and written representations
as set forth above, but also made the written representations set
forth on the June 30, 2006 balance sheet attached as Exhibit B to
the Sharareh Affidavit, and the June 30, 2006 income statement
attached as Exhibit C to the Sharareh Affidavit. 	The fact refers
to Affidavit ¶ 15, which is identical.
The Defendants argue that the deposition testimony indicates
that Sharareh prepared the June 30, 2006 balance sheet himself,
from data that came from the Peach Tree accounting system, which
had data input into it by Debbie Newsome, an NMAS employee.
Arguably, Defendants show an issue of fact here.
FACT 16
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Fact 16 states “R. Wickens’ oral and written representations
set forth above were materially false, and R. Wickens knew they
were false when he made them. 	Without limiting the generality of
the foregoing, Sharareh learned through discovery in this
adversary proceeding that:
a. Real Turf’s accounts receivable were only about $30,700,
not $1,128,000;
b. Real Turf’s inventory only had a book value of about
$109,000, not $629,000;
c. Real Turf had contracts in hand worth only about
$1,100,000, not $83,000,000;
d. Total revenue for 2006 was about $2,900,000, almost all
of which (about $2,300,000) was collected by June 30, 2006; and
e. Rather than a net income of $99,839 for the six months
ended June 30, 2006, Real Turf had an enormous loss. 	The fact
refers to Affidavit ¶¶ 16-17 and Real Turf’s Statement of
Financial Affairs. 	Affidavit ¶ 16 states “[f]urthermore, before
making the Loans R. Wickens told me that Real Turf’s projected
revenue for the last half of 2006 was between $6,000,000 and
$8,000,000." 	Affidavit ¶ 17 is identical to Fact 16.
Defendants argue that it is impossible for Sharareh to have
known R. Wicken’s state of mind. 	The Court agrees. 	Generally,
questions of intent, which involve intangible factors including
witness credibility, are matters for consideration of the fact
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finder after a full trial. 	Prochaska v. Marcoux, 632 F.2d 848,
851 (10 th Cir. 1980), cert. denied, 451 U.S. 984 (1981). 	See
also Tower Oak, Inc. v. Selmonosky (In re Selmonosky), 204 B.R.
820, 828 (Bankr. N.D. Ga. 1996) (“[I]ssues of fraud or intent are
not ordinarily amenable to summary disposition due to the
importance of the Court’s personal observation of witness
demeanor during examination in relation to assessing
credibility.”)
FACT 17
Fact 17 states “[a]ttached as Exhibit D to the Sharareh
Affidavit is a balance sheet dated December 31, 2006, obtained
through discovery in this adversary proceeding, which is an
accurate portrayal of Real Turf’s financial situation as of that
date." 	The fact refers to Affidavit ¶ 18, which is substantially
identical.
Defendants’ have a single argument regarding facts 17
through 20, discussed below.
FACT 18
Fact 18 states “[a]ttached as Exhibit E to the Sharareh
Affidavit is an income statement for the twelve months ended
December 31, 2006, obtained through discovery in this adversary
proceeding, which is an accurate portrayal of Real Turf’s income
for 2006." 	The fact refers to Affidavit ¶ 19, which is
identical.
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Defendants’ have a single argument regarding facts 17
through 20, discussed below.
FACT 19
Fact 19 states “[t]he December 31, 2006 Balance Sheet
reflects a reduction in the value of Real Turf’s assets of more
than $1,500,000, and an increase in Real Turf’s liabilities of
more than $1,400,000, as compared to Real Turf’s June 30 Balance
Sheet, for a net change in position of more than $2,900,000."
The fact refers to Affidavit ¶ 20, which is identical.
Defendants’ have a single argument regarding facts 17
through 20, discussed below.
FACT 20
Fact 20 states “[t]he December 31 Balance Sheet reflects a
reduction in the value of Real Turf’s assets or more than
$1,300,000, and an increase in Real Turf’s liabilities of more
than $2,200,000, as compared to the 2005 Tax Return, for a net
change in position of more than $3,500,000.” 	Fact 20 refers to
Affidavit ¶ 21, which is identical.
Defendants argue that Sharareh has no foundation for his
statements that certain exhibits are “accurate” and some are
misrepresentations. 	Nothing in the deposition explains how he
decided that some are accurate and some are not. 	The Court
agrees that this is a possible state of events, so finds that
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there is a disputed question of fact regarding facts 17 through
20.
FACT 25
Fact 25 states “[a]ttached as Exhibit F to the Sharareh
Affidavit is a loan write-up done by the Bank of Albuquerque in
September 2006. 	The write-up shows (e.g. on page 4
(Background/Industry/Ownership & Management) that Mr. Wickens
made the same misrepresentations to the Bank of Albuquerque as he
made to Sharareh. (Footnote 1, “The representations were
successful; Bank of Albuquerque loaned Real Turf $1,300,000.
Because of the possible criminality of the misrepresentations to
the bank, R. Wickens refused to answer questions when Plaintiffs
deposed him, pleading the protection of the Fifth Amendment to
the United States Constitution." 	The footnote refers to
Affidavit ¶ 34, which is identical.) 	Fact 25 refers to Affidavit
¶ 26, which is identical.
Fact 25 is based on a document which would not be admissible
into evidence through Sharareh. 	It is inadmissible hearsay. 	He
lacks the foundation to testify about it.
FACT 32
Fact 32 states “[a]lthough NMAS and Sharareh did accounting
work for Real Turf, Sharareh had no way of verifying whether the
figures given to Sharareh for account receivable, inventory, or
contracts in hand were accurate, short of conducting a full audit
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of Real Turf’s books, a task NMAS was never retained to do.”
Fact 32 refers tp Affidavit ¶ 32 (sic, should be ¶ 33); ¶ 33 is
identical.
Defendants dispute this fact; claiming that Mr. Sharareh had
many ways of verifying all or any of the bookkeeping data through
his employees, who spent part of their working days at Real Turf.
OTHER QUESTIONS OF FACT
Although not addressed by the parties, the Court finds that
there are other questions of fact that preclude summary judgment.
First, if there were loan documents, why were they not made a
part of the summary judgment motion? 	The Court finds that there
is a fact question as to who was the true debtor, Real Turf or
Mr. Wickens. 	Was there a guarantee? 	Do Plaintiffs seek to hold
Mr. Wickens liable through some sort of accessory liability?
Second, the Court finds no facts relating to the reasonableness
or justification for reliance on any representations made by
Wickens. 	For example, does the relationship of the parties,
i.e., financial advisor and client, suggest a higher standard for
reliance under these facts? 	Third, did Wickens actually
“publish” the allegedly false financial statements as opposed to
merely having them “prepared” by NMAS? 	It is unclear from the
current record. 	Finally, there are references in the motion and
response regarding Mr. Wicken’s assertion of the Fifth Amendment
privilege. 	As a general rule,
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in a civil proceeding, the drawing of a negative
inference is a permissible, but not an ineluctable,
concomitant of a party's invocation of the Fifth
Amendment. 	See Mulero-Rodríguez v. Ponte, Inc., 98
F.3d 670, 678 (1st Cir. 1996). 	While the law does not
forbid adverse inferences against civil litigants who
refuse to testify on Fifth Amendment grounds, see
Baxter v. Palmigiano, 425 U.S. 308, 318, 96 S.Ct. 1551,
47 L.Ed.2d 810 (1976), it does not mandate such
inferences. 	When all is said and done, the trial court
has discretion over whether a negative inference is an
appropriate response to the invocation of the Fifth
Amendment in a particular civil case.
Gannett v. Carp (In re Carp), 340 F.3d 15, 23 (1 st Cir. 2003).
However, in ruling on motions for summary judgment, all
inferences must be drawn in favor of the non-movant. 	Selenke,
248 F.3d at 1255-56. 	Therefore, it is probably incorrect to
drawn an adverse inference against one who claims the Fifth
Amendment privilege at the summary judgment stage. 	In re
Marrama, 445 F.3d 518, 522 (1 st Cir. 2006).
CONCLUSION
The Motion for Summary Judgment will be denied. 	The Court
will set a final pre-trial conference, and trial.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date Entered on Docket: 	October 14, 2009
copies to:
David T Thuma
500 Marquette Ave NW Ste 650
Albuquerque, NM 87102-5309
Daniel J Behles
Cuddy & McCarthy, LLP
7770 Jefferson NE, Suite 305
Albuquerque, NM 87109
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