Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_06-ap-04043/USCOURTS-canb-4_06-ap-04043-0/pdf.json

Parties Involved:
Richard A. Swain
Defendant
Sarah Alam
Plaintiff

Document Text:

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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1

Bankruptcy Code § 523(a)(2)(A) provides as follows:

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

(continued...)

Decision

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re Case No. 05-48372 EDJ

 Adv. No. 06-4043 AJ

RICHARD A. SWAIN,

 Debtor. /

SARAH ALAM,

 Plaintiff,

vs.

RICHARD A. SWAIN,

 Defendant. /

DECISION

By this adversary proceeding, plaintiff Sarah Alam (“Alam”)

seeks to render a debt she is owed by Richard A. Swain, the above

debtor (“Swain”), nondischargeable pursuant to Bankruptcy Code 

§ 523(a)(2)(A)1 and (B).2 The court will enter judgment in favor of

Signed: November 02, 2007

________________________________________

EDWARD D. JELLEN

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

November 02, 2007

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 1 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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1(...continued)

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. 

2

At trial Alam abandoned her claim for relief under

Bankruptcy Code § 523(a)(2)(B) (obtaining credit by a false

statement in writing respecting the financial condition of the

debtor or an insider).

Decision 2

Swain.

A. Facts

The evidence Alam presented at trial was in large part

different than the allegations of her complaint. The complaint

alleges that Swain misrepresented himself to Alam as a different

person, Richard F. Swain, and used this false identity to induce her

to extend credit. The complaint also alleges that Swain was a

“consummate con artist” that preyed on young females by inducing

them to lend him money to payoff prior victims that had threatened

Swain with lawsuits. Alam, however, presented no admissible

evidence to support these allegations.

What the evidence did show was that, at the time of the acts

complained of, Swain was a licensed flooring contractor. He met

Alam in 2003. After the two of them dated for several months, Swain

moved in with Alam. Thereafter, Alam lent Swain substantial sums of

money, and essentially supported him by providing him with a rentfree place to live, food, use of her credit card, and many gifts. 

During the period Swain lived with Alam, Alam introduced Swain

to her sister, Jawadia Alam (“Jawadia”), who was in need of some

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 2 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 3

remodeling work at her home. Swain attempted to do the work. 

Unfortunately for Jawadia, who is not a party to this action, Swain

botched the job. Swain performed work that he was not licensed to

perform, and hired subcontractors that were not licensed. Many of

the materials that Swain purchased for the job were paid for by

Alam. 

Alam was aware during the period that she was lending money to

Swain that Swain did not have the ability to repay any of the loans. 

Alam testified that by December of 2003, she had no confidence that

Swain would ever be able to repay her anything. To induce Alam to

continue lending him money, Swain told her that Burton Milburn

(“Milburn”), who had initially recommended Swain to Alam, would

guaranty his debts to her. That month, Milburn came to Alam’s home

and signed a document he tore out of a legal form book headed

“Specific Guaranty.” In reliance on the Specific Guaranty, Alam

continued to lend money to Swain. 

Alam testified at trial that she lent Swain some $49,000 over

the course of their relationship, and that she lent approximately

two-thirds of that amount after Milburn had provided her with the

Specific Guaranty.

Swain eventually moved out, owing Alam substantial sums. He

filed his voluntary chapter 7 petition on October 14, 2005. Alam

sued Milburn on the Specific Guaranty, and for reasons hereinafter

mentioned, settled her lawsuit against Milburn for the sum of

$15,000. 

/////

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 3 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 4

B. Discussion

To prevail under Bankruptcy Code § 523(a)(2)(A), a creditor

must establish that: (1) the debtor made a representation, (2) with

knowledge of its falsity, (3) with the intention and purpose of

deceiving the creditor, (4) that the creditor justifiably relied on

the representation, and (5) that the creditor sustained damage as

the proximate result thereof. In re Kirsh, 973 F.2d 1454, 1457 (9th

Cir. 1992); In re Britton, 950 F.2d 602, 604 (9th Cir. 1991). The

creditor must establish each of these elements by a preponderance of

the evidence. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654 (1991).

At trial, Alam presented two theories why Swain’s debt to her

should be nondischargeable under Bankruptcy Code § 523(a)(2)(A). 

First, Alam contends that Swain defrauded her by providing her with

the Specific Guaranty knowing that it was invalid. Second, Alam

contends that she extended credit to Swain in reliance on his

misrepresentation or false pretense that he was a general

contractor. Both theories fail.

1. The Specific Guaranty

Alam bases her contention concerning the Specific Guaranty on

the facts that the word “Witness,” appears below Milburn’s signature

on the Specific Guaranty, and that after she sued Milburn, Milburn

claimed that he did not sign the Specific Guaranty as a guarantor,

but only as a witness. 

This argument fails for numerous reasons. First, the argument

assumes that the Specific Guaranty was not effective as Milburn’s

guaranty, even thought this assumption is not necessarily a correct

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 4 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 5

one. The Specific Guaranty reads, in relevant part:

[A]s an inducement for Sarah Alam . . . Creditor) to

extend credit to Richard Swain . . . (Borrower); the

undersigned jointly, severally and unconditionally

guarantee to Creditor the prompt and full payment of the

following obligation: Any money borrowed by Richard Swain.

. . . In the event of default, the Creditor may seek

payment directly from the undersigned without need to

proceed first against the Borrower, and the undersigned

waive all suretyship defenses. . . . 

The Specific Guaranty was signed by Alam, Swain, and Milburn. The

printed word “Creditor” appears below Alam’s signature; the printed

word “Borrower” appears below Swain’s signature; the printed word

“Witness” appears below Milburn’s signature. There is no signature

line on the form bearing the printed word “Guarantor.”

But who, other than Milburn, could have been the “undersigned”

against whom Alam could “seek payment directly without need to

proceed first against the Borrower”? The answer, clearly, is no

one: the Specific Guaranty makes no sense and could have no purpose

unless it is Milburn’s guaranty of Swain’s debt to Alam. And this

is so notwithstanding the printed word “Witness” below Milburn’s

name. 

The court before which Alam’s lawsuit againt Milburn was

pending made no finding as to effectiveness of the Specific Guaranty

because, as previously mentioned, Alam elected to settle.

If the Specific Guaranty had been found to have been valid,

however, it would follow that Swain made no misrepresentation to

Alam concerning its legal effect.

But even if the Specific Guaranty might have been found to have

been invalid, Alam would still not prevail herein as to this claim. 

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 5 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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3

The court hearing Alam’s suit against Milburn had ruled

that parole evidence would not be admissible to construe the

Specific Guaranty. Based exclusively on the “four corners” of

the Specific Guaranty, and for the reasons mentioned above, if

the issue as to the enforceability of the Specific Guaranty had

been before this court, this court would have ruled that,

notwithstanding Milburn’s disclaimer of liability, the Specific

Guaranty was an enforceable guaranty by Milburn of Swain’s debt

to Alam. 

Decision 6

Alam presented absolutely no evidence to this court that would

suggest that Swain had any knowledge as to the invalidity of the

Specific Guaranty. Nor did Alam present any evidence showing that

Swain had any knowledge at the time Milburn signed the Specific

Guaranty that Milburn would later disclaim liability thereunder. 

Morever, the Specific Guaranty was taken from a legal form

book, and thus was not a document that Swain designed for purpose of

deceiving Alam. In addition, Swain has had no legal training, and

received no legal opinion in advance of the signing of the Specific

Guaranty as to its validity or lack thereof. Therefore, Swain could

not have known that the Specific Guaranty was not valid when, at

best from Alam’s point of view in the present litigation, its legal

effect was unclear.3 

For the same reasons, Alam, knowing that Swain had no legal

training, could not have justifiably relied on any views Swain may

have expressed as to the legal enforceability of the Specific

Guaranty. 

The court holds that Alam’s claim regarding the Specific

Guaranty is without merit.

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 6 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 7

2. General Contractor

Alam contends that Swain misrepresented to her that he was a

general contractor, when in fact, he was licensed only as a flooring

contractor, and that she would not have extended credit to Swain had

she known the actual facts. This argument is not well grounded.

First, Alam admitted at trial that Swain never once

misrepresented to her that he was a general contractor. Rather, he

told her, truthfully, that he was a contractor. The weight of the

evidence showed that Alam assumed Swain was a general contractor

because of the general contractor type work he was doing at

Jawadia’s home. 

Secondly, Alam failed to establish that she extended Swain any

credit in justifiable reliance on any misrepresentations by Swain

concerning his professional license. Even if Swain had falsely

represented to Alam that he was licensed as a general contractor,

Alam failed to explain why Swain being a general contractor, rather

than just a contractor, would have been a material factor in her

decision to extend credit. This is especially true because Alam

knew at all times during the period she was lending money to Swain

that he was, in fact, unable to repay her anything.

Moreover, Alam admitted that by December 9, 2003, when Milburn

signed the Specific Guaranty, she had given up all hope of being

repaid by Swain, and that she was extending Swain credit in

exclusive reliance on the Specific Guaranty.

In short, the weight of the evidence showed that Alam extended

credit to Swain, initially, based on their close personal

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 7 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 8

relationship, and after December 9, 2003, based on the Specific

Guaranty. The court therefore holds that Alam did not extend any

credit to Swain in justifiable reliance on any misrepresentations by

Swain.

C. Conclusion

For the foregoing reasons, the court will enter judgment in

favor of Swain.

**END OF ORDER**

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 8 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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Decision 9

COURT SERVICE LIST

ALL RECIPIENTS 

Case: 06-04043 Doc# 31 Filed: 11/02/07 Entered: 11/02/07 17:11:34 Page 9 of 9