Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-09-06023/USCOURTS-ca8-09-06023-0/pdf.json

Parties Involved:
Glenstone Lodge
Appellant
Carole Elaine Treadwell
Appellee
Larry Weldon Treadwell
Appellee

Document Text:

United States Bankruptcy Appellate Panel

FOR THE EIGHTH CIRCUIT 

______ 

No. 09-6023 

______

In re: Larry Weldon Treadwell; * 

Carole Elaine Treadwell, * 

 * 

Debtors. * 

 * 

Larry Weldon Treadwell; Carole * Appeal from the United States 

Elaine Treadwell, * Bankruptcy Court for the Western 

 * District of Missouri 

Plaintiffs – Appellees, * 

 * 

v. * 

 * 

Glenstone Lodge, Inc., * 

 * 

Defendant – Appellant. * 

______ 

Submitted: December 18, 2009 

Filed: February 1, 2010 

______ 

Before KRESSEL, Chief Judge, MAHONEY and SALADINO, Bankruptcy 

Judges. 

______ 

KRESSEL, Chief Judge. 

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 Glenstone Lodge appeals from the bankruptcy court’s order1

 avoiding its 

judicial lien on the debtors’ home and determining the underlying debt to be 

dischargeable. We affirm in part and reverse in part. 

BACKGROUND 

 Carole and Larry Treadwell are married. Carole runs Memory Travel, a 

travel agency. Memory Travel is not incorporated. Larry and Carole consider 

themselves to be co-owners of the business because they are married and share 

equally in “everything.” 

Carole is a member of the Red Hat Society, Inc., a social organization for 

women over the age of fifty. Members are known for their flamboyant red hats 

and refer to themselves as “redhatters.” In early 2005, Carole began organizing an 

event in Gatlinburg, Tennessee for redhatters. Although the event was not an 

official Red Hat Society event, Carole used the corporation’s logos on her 

advertisements and in her correspondence. 

In April of 2005, Carole contacted the Gatlinburg Department of Tourism 

for assistance in selecting facilities for the event. The Department sent a sales lead 

to area hotels, including Glenstone Lodge, Inc. Claudette Geoffrion, the former 

director of sales at Glenstone, contacted Carole with a proposal and Carole selected 

Glenstone for the redhatter event’s accommodations. For the next several months, 

Carole and Claudette frequently exchanged e-mails and talked on the phone. 

Together they made arrangements for guest accommodations as well as for 

entertainment and activities for the redhatter event, which included a Hawaiian 

luau, a fifties-themed sock hop dinner, day trips, and a pajama breakfast. 

In a May 5, 2005 e-mail, Carole told Claudette that each redhatter would 

make her reservation through Carole, and that Carole would then pay Glenstone 

                                                            1 Treadwell v. Glenstone (In re Treadwell), 411 B.R. 636 (Bankr. W.D. 

Mo. 2009).

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“via one check.” In June of 2005, Carole signed an initial contract with Claudette 

for 150 rooms for April 20-23, 2006. Carole paid the required $250 deposit. The 

contract provided that the first night’s room and tax would be paid in March 2006 

when Carole submitted a list of room assignments. The balance was to be paid at 

check-in on April 20, 2006. Carole then advertised the Gatlinburg trip to the 

redhatters, who responded enthusiastically. 

In October of 2005, Carole realized that she had undercharged the redhatters 

for the Gatlinburg event. She knew that she had made a serious mistake in her 

estimation of the costs of entertainment, decorations, transportation and other 

incidentals. Carole knew she would not be able to satisfy the Glenstone bill for the 

event, and all representations she made about the bill from that time on were 

knowingly false. She continued to receive some prepayments and deposits from 

the redhatters, but used the funds to pay for other trip-related expenses such as the 

entertainers. 

In January of 2006, Carole took $10,000 from the redhatters’ deposits to pay 

for her mother’s funeral expenses. That same month, Carole and Larry visited 

Glenstone and made further arrangements for the event with Claudette and other 

staff members. 

Carole did not make the required payment in March when she submitted her 

list of room assignments. The bankruptcy court found that Glenstone had, for 

some reason, waived the contractual requirement. On April 20, 2006, the 

Treadwells and the redhatters arrived. The contract required that the balance due 

be paid at check-in, but Carole obtained another waiver. By April 24, 2006, the 

last day of the event, Memory Travel had not paid anything to Glenstone except for 

the initial $250 deposit. However, Carole collected about $20,000 from the 

redhatters during the event and had hoped to collect additional deposits from the 

redhatters in anticipation of future events. The Treadwells left on Monday, April 

24, 2006 without checking out, paying the outstanding charges, or notifying 

Glenstone staff of their departure. The bill was over $60,000. 

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On Monday, April 24, Glenstone staff contacted Carole about her failure to 

pay the bill. Carole responded by email on April 26, stating that she had turned the 

bill over to her bookkeeper and that she would pay it after some minor adjustments 

were made. Carole did not have a bookkeeper. On April 26, Carole sent a $20,000 

check from the Treadwell Family Revocable Living Trust’s bank account by 

overnight delivery as partial payment. On April 27, when Glenstone told her they 

had not received the check, she wired $15,000 to Glenstone and promised that she 

would immediately send a $5,000 check as well. She asked Glenstone not to 

deposit the $20,000 check. Glenstone did not receive the $5,000 check so it 

attempted to deposit the $20,000 check. However, Carole had issued a stop 

payment on the $20,000 check. Carole made no other payments to Glenstone 

following the wire transfer. 

Glenstone sued the Treadwells and the Treadwell Family Revocable Living 

Trust in state court in Sevier County, Tennessee, asserting: (i) fraud pursuant to § 

62-7-107(b) of the Tennessee Code; (ii) violations of the Tennessee Consumer 

Protection Act; (iii) conversion; (iv) breach of agreement; (v) fraud, promissory 

fraud, mail and wire fraud; and (vi) violation of various provisions of the 

Tennessee Code based on the stop payment of the $20,000 check. Glenstone also 

named The Red Hat Society, Inc. as a defendant. The Red Hat Society, Inc. filed a 

cross-claim against the Treadwells and denied any involvement in the event. 

Glenstone dismissed The Red Hat Society, Inc. as a defendant. The Treadwells 

and the Treadwell Family Revocable Living Trust failed to answer, and the 

Chancery Court for Sevier County, Tennessee awarded treble damages and entered 

a default judgment against them in the amount of $153,611.44 plus costs. 

Glenstone registered the judgment against the Treadwells in Missouri, thereby 

creating a lien against the Treadwells’ residence. 

On August 27, 2008, the Treadwells filed a chapter 7 bankruptcy petition. 

On September 18, 2008, the Treadwells initiated this adversary proceeding against 

Glenstone, seeking to avoid Glenstone’s judicial lien on their home. Glenstone 

answered and counterclaimed against the Treadwells, seeking a determination that 

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the Treadwells’ debt to it was nondischargeable under 11 U.S.C. § 523(a)(2), 

(a)(4), and (a)(6). 

The court held a trial on April 22 and 23, 2009. The Treadwells and 

Glenstone employees Urcella House and Rita Marshall testified. Claudette 

Gioffrion, who would have been the most knowledgeable about Glenstone’s 

communications with the Treadwells, did not testify. On June 16, 2009, the court 

issued a memorandum opinion and order directing judgment in favor of the 

Treadwells. The bankruptcy court found that the judicial lien was avoidable 

pursuant to 11 U.S.C. § 522(f)(1) and that the Treadwells’ debt to Glenstone was 

not excepted from discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4), or (a)(6). 

STANDARD OF REVIEW 

We review the bankruptcy court’s findings of fact for clear error and its 

conclusions of law de novo. Kaelin v. Bassett (In re Kaelin), 308 F.3d 885, 888 

(8th Cir. 2002); Bauer v. Iannacone (In re Bauer), 298 B.R. 353, 356 (B.A.P. 8th 

Cir. 2003). “[A] finding is ‘clearly erroneous’ when although there is evidence to 

support it . . . the reviewing court is left with the definite and firm conviction that a 

mistake has been committed.” Anderson v. Bessemer City, 470 U.S. 564, 573, 105 

S.Ct. 1504, 84 L.Ed.2d 518 (1985) (quoting U.S. v. U.S. Gypsum Co., 333 U.S. 

364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948)). 

DISCUSSION 

A. Dischargeability 

 A discharge under 11 U.S.C. § 727 does not discharge an individual debtor 

for any debt “for money, property, services, or an extension, renewal, or 

refinancing of credit, to the extent obtained by . . . false pretenses, a false 

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representation or actual fraud.” 11 U.S.C. § 523(a)(2)(A). 2

 In order to prevail 

under § 523(a)(2)(A) on the basis of actual fraud, a creditor must prove: “(1) the 

debtor made a false representation; (2) at the time the representation was made the 

debtor knew it was false; (3) the debtor subjectively intended to deceive the 

creditor at the time he made the representation; (4) the creditor justifiably relied 

upon the representation; and (5) the creditor was damaged.” Fee v. Eccles (In re 

Eccles), 407 B.R. 338, 342 (B.A.P. 8th Cir. 2009). The bankruptcy court found 

that Glenstone had established all of the elements of actual fraud and false 

pretenses as to Carole except for one: justifiable reliance.3

 The Treadwells do not 

challenge those findings. As to Larry, the bankruptcy court found that Glenstone 

had not established three elements: knowledge of falsity, subjective intent to 

deceive or justifiable reliance. 

1. Justifiable Reliance Is a Lower Standard than Reasonable Reliance; There Is 

No Duty to Investigate 

The Supreme Court has held that the standard to be applied to exceptions to 

discharge for actual fraud under 11 U.S.C. § 523(a)(2)(A) is “justifiable reliance,” 

which is a lower standard that “reasonable reliance,” and entails no duty to 

investigate. Field v. Mans, 516 U.S. 59, 116 S.Ct. 437 (1995). The Supreme 

Court examined the history of § 523(a)(2)(A) and concluded that “false pretenses, 

a false representation, or actual fraud” are terms of art referring to common law 

torts. Id. The Court therefore looked to the Restatement (Second) of Torts and 

                                                           

 2 Glenstone also sought a determination of nondischargeability under 

11 U.S.C. § 523(a)(4), for fraud or defalcation while acting in a fiduciary capacity, 

embezzlement or larceny, and § 523(a)(6), for willful and malicious injury. The 

bankruptcy court found that § 523(a)(4) did not apply and that there was no basis 

to conclude that Carole had acted with intent to harm under § 523(a)(6). Glenstone 

does not challenge those parts of the bankruptcy court’s decision. 

3

 The parties do not challenge the bankruptcy court’s treatment of false 

pretenses as distinct from actual fraud under § 523(a)(2)(A), but rather dispute only 

the court’s findings of fact and application of law regarding whether Glenstone’s 

reliance was not justified.

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Prosser’s Law of Torts for guidance on the appropriate standard. Id.; see also 

Waring v. Austin (In re Austin), 317 B.R. 525 (B.A.P. 8th Cir. 2004); Guske v. 

Guske (In re Guske), 243 B.R. 359 (B.A.P. 8th Cir. 2000). 

According to the Restatement (Second) of Torts, “The recipient of a 

fraudulent misrepresentation of fact is justified in relying upon its truth, although 

he might have ascertained the falsity of the representation had he made an 

investigation.” Rest. 2d Torts § 540. An example from the Restatement illustrates 

the principle: 

. . . if one induces another to buy a horse by representing it to be 

sound, the purchaser cannot recover even though the horse has but one 

eye, if the horse is shown to the purchaser before he buys it and the 

slightest inspection would have disclosed the defect. On the other 

hand . . . a defect that any experienced horseman would at once 

recognize at first glance may not be patent to a person who has had no 

experience with horses. 

Field at 71, 116 S.Ct. 444 (quoting Rest. 2d Torts § 541, Comment a). The 

Supreme Court also made the following observation, quoting § 545A from the 

Restatement: 

Here a contrast between a justifiable and reasonable reliance is clear: 

“Although the plaintiff’s reliance on the misrepresentation must be 

justifiable . . . this does not mean that his conduct must conform to the 

standard of the reasonable man. Justification is a matter of the 

qualities and characteristics of the particular plaintiff, and the 

circumstances of the particular case, rather than of the application of a 

community standard of conduct to all cases.” 

Field at 70-71, 116 S.Ct. 444. Although Glenstone’s reliance may not have been 

reasonable, it certainly was justifiable under the minimal standard articulated by 

the Supreme Court. The bankruptcy court clearly erred in finding that because 

Glenstone failed to investigate Memory Travel’s ability to pay for the redhatters 

event, its reliance was not justifiable. 

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The circumstances demonstrate justifiable reliance by Glenstone. The sales 

lead came from the Gatlinburg Department of Tourism, and identified the event as 

the “Tennessee Redhatters 2006 Spring Event,” which implied some sort of 

association with the national organization. For months prior to the event, Carole 

worked with Claudette Gioffrion of Glenstone on every detail. They e-mailed 

frequently, discussing not only the event but also Carole’s other events, her 

mother’s cancer, and then her mother’s passing. As early as May of 2005, Carole 

had made clear to Glenstone that she intended to pay with one check and that she 

preferred all registrations to go through her. Claudette apparently found that 

acceptable. It was the hotel’s policy to accommodate every group as much as 

possible. In an e-mail on June 14, 2005, Carole apologized for not getting the 

deposit to Claudette on time, but said that she could not pay the deposit “until all 

things are settled and we are sure we are ready to go.” Again, Claudette 

accommodated her. At some point, Claudette came to view Carole as a friend, as 

demonstrated in one of her last e-mails to Carole, dated April 25, 2006: “I still 

think you are my friend, will you please contact us???” It was undisputed that 

when Glenstone staff asked Carole during the event about payment, she answered 

that she intended to pay with a single check after they had finalized the numbers. 

Glenstone did in fact make a number of changes to the bill during and immediately 

after the event. At all times, it appeared to the parties that the event was going to 

be very successful, with nearly all of the rooms booked months in advance. All of 

these facts indicate that Glenstone’s reliance was justifiable. 

However, it is true that “The recipient of a fraudulent misrepresentation is 

not justified in relying upon its truth if he knows that it is false or its falsity is 

obvious to him.” Rest. 2d Torts § 541. We noted that principle when we said: 

Although [the plaintiff] was not required to conduct any investigation 

as to the truth of the Debtor’s representation by signing the consent 

decree that he intended to pay the money, the evidence indicates that 

there were “obvious warning signs” of its falsity, namely, that he told 

her he would not pay it. 

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Guske, 243 B.R. at 363. This case does not involve obvious warning signs of 

falsity, and the bankruptcy court found no evidence that an investigation would 

have unearthed proof of the fraud. The bankruptcy court did not find any evidence 

that Carole had told Claudette that she did not intend to pay. Rather, the court 

found that Carole repeatedly obtained waivers of the usual payment terms. 

Repeated requests to postpone payment, without more, do not rise to the level of 

obvious warnings sign of falsity. 

There is a “red flag” exception, as noted earlier, for extreme situations such 

as the one-eyed horse or where a debtor tells the creditor he will not be able to 

repay his debt. Glenstone made a bad business decision in allowing the redhatter 

event to proceed without prepayment. Glenstone apparently accepted Carole’s 

explanation that she wanted to pay with one check after all issues with the bill had 

been resolved. It was not obvious to the Glenstone staff until after the event that 

Carole had deceived them about her ability to pay, but of course it would have 

been too late at that point for Glenstone to take any preventative measures. 

The bankruptcy court observed that there was no evidence that Glenstone 

conducted a background or credit check on Memory Travel or the Treadwells. 

Although it held that Glenstone should have conducted an investigation, the 

bankruptcy court found no evidence that a background or credit check would have 

alerted Glenstone to Memory Travel’s inability to pay. If Glenstone had 

investigated Carole and Memory Travel, it might not have uncovered anything 

alarming. During at least some of the time prior to the event, Carole appears to 

have had a positive cash flow. It was not until January of 2006 that Carole used 

event funds to pay for her mother’s funeral, and she continued to receive payments 

from the redhatters the weekend of the redhatter event. It was undisputed that 

Carole had previously arranged other travel events, and the court found no 

evidence that she had engaged in similarly fraudulent activity in the past. 

“The rationale for placing this relatively low burden on the victim of the 

misrepresentation is rooted in the common law rule that the victim’s contributory 

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negligence is not a defense to an intentional tort.” Sanford Institution for Savings 

v. Gallo, 156 F.3d 71, 74 (1st Cir. 1998) (citing Restatement (Second) or Torts § 

540, 541 cmt. a (1976)). “In such circumstances, the equities weigh in favor of 

giving the benefit of the doubt to the victim, careless as it may have been, and even 

though it could have been more diligent and conducted an investigation.” Id. The 

bankruptcy court found that Carole intentionally deceived Glenstone. Glenstone 

is entitled to have Carole’s debt to it excepted from her discharge despite the fact 

that its employees made an enormous mistake by trusting her. We reverse the 

bankruptcy court’s determination. 

2. Larry Treadwell’s Debt Is Dischargeable 

We agree with the bankruptcy court’s determination that Larry’s debt to 

Glenstone is dischargeable, even though Glenstone proved justifiable reliance. 

“On appeal, [. . .] we may affirm the bankruptcy court’s decision on any basis 

supported by the record.” Sells v. Porter (In re Porter), 375 B.R. 822, 828 (B.A.P. 

8th Cir. 2007). The bankruptcy court only made the following findings of fact 

regarding Larry: 1) “Larry and Carole Treadwell are equal owners in a travel 

agency business known as Memory Travel”; and 2) “As to Larry, although it is 

likely that he was also aware that they did not have the money to pay the bill, there 

was no actual evidence of that fact. Consequently, although I find that Larry made 

implied representations about payment, unlike Carole, I cannot find that his 

representations were knowingly false.” The bankruptcy court did not find that 

Larry and Carole were partners. 

It is highly unusual to hold a debt nondischargeable under 11 U.S.C. § 

523(a)(2) where the debtor is only vicariously liable and has not participated in the 

fraud. Glenstone argues that the Eighth Circuit has held that a partnership’s 

liability under § 523(a)(2)(A) may be imputed to its agent or partner even in the 

absence of evidence that the agent or partner knowingly participated in the fraud. 

The case cited by Glenstone is factually and legally inapposite. See Owens v. 

Miller (In re Miller), 276 F.3d 424 (8th Cir. 2002). Miller was the chairman of the 

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board for Andover Securities, a securities brokerage firm licensed by the National 

Association of Securities Dealers. While Miller was chairman, Andover employed 

Bohling as a vice president. Bohling managed the investments of steel mill retirees 

and their spouses. Bohling invested the retirees’ funds in speculative investments, 

which ultimately failed, costing the retirees most of their savings. Bohling was 

found to have engaged in fraudulent conduct that violated the Securities Exchange 

Act. At the time, Miller had indications that Bohling was engaged in fraud, but 

had allowed him to continue the practices. Miller knew or should have known of 

the securities violations but did nothing to stop him. Miller filed a voluntary 

petition, and the retirees filed an adversary proceeding, seeking a determination of 

nondischargeability under 11 U.AS.C. § 523(a)(2)(A). 

In the Miller case, the court decided the narrow issue of whether the 

bankruptcy court had incorrectly excepted the debt to the retirees from the debtor’s 

discharge under § 20(a) of the Securities Exchange Act of 1934, which “renders an 

innocent person’s debt nondischargeable when a person over whom the innocent 

person exercised control committed actual fraud.” Miller at 429. The court 

concluded that the bankruptcy court erred by imputing Bohling’s fraud to Miller 

under § 20(a) of the Securities Exchange Act because the Bankruptcy Code does 

not contain a specific exception to discharge for securities law violations. The 

court discussed the Supreme Court’s Strang decision and concluded that under 

Strang, the common law of agency and partnership could be applied to “impute the 

fraud of an innocent debtor’s business partner to that debtor and so render his debt 

nondischargeable.” Id. (discussing Strang v. Bradner, 114 U.S. 555, 5 S.Ct. 1038

(1885)). However, the court did not read Strang as providing a basis for 

broadening the scope of § 523 to include liability under the Securities Exchange 

Act. 

The appellants misread the Miller case, which is not relevant to the 

Treadwells except that it concludes that Strang is still good law. In Strang, the 

Supreme Court held that a general partner’s fraud may be imputed to all of the 

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members of his firm under agency and partnership principles. The Court 

concluded: 

Each partner was the agent and representative of the firm with 

reference to all business within the scope of the partnership. And if, 

in the conduct of partnership business, and with reference thereto, one 

partner makes false or fraudulent misrepresentations of fact to the 

injury of innocent persons who deal with him as representing the firm, 

and without notice of any limitations upon his general authority, his 

partners cannot escape pecuniary responsibility therefor upon the 

ground that such misrepresentations were made without their 

knowledge. This is especially so when, as in the case before us, the 

partners, who were not themselves guilty of wrong, received and 

appropriated the fruits of the fraudulent conduct of their associate in 

business. 

Strang at 561, 5 S.Ct. 1041. Under Strang, partnership liability must be 

established first in order to hold the innocent partner’s debt nondischargeable. The 

bankruptcy court in this case did not fully analyze the formalities of the Memory 

Travel partnership because it was not necessary for its holding, but if it had, the 

record would not have supported a finding that Larry was a partner in Carole’s 

travel business. 

Memory Travel is not a limited liability partnership or corporate entity. 

Therefore, if it is a partnership at all, it would be a general partnership, subject to 

Missouri law on partnerships. However, there is no evidence of an actual 

partnership. Larry had no authority to control the business, did not believe himself 

to be a business partner, had no authority to act on behalf of the business, and 

apparently did nothing except help out at events, travel with Carole, and add his 

two cents about entertainment and logistics simply because he was there. Carole 

forged Larry’s name on the fictitious name registration. His ownership interest 

was described by the Treadwells as a marital interest.4

 In other words, because the 

                                                            4

 A marital relationship is insufficient to establish partnership or agency 

in order to hold a debtor liable for his spouse’s fraud for nondischargeability 

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Treadwells share equally in everything, they considered Larry to be a fifty percent 

owner of the business, just as he was a fifty percent owner of the household 

furnishings. Carole rarely, if ever, talks to him about their income or expenses. He 

testified that he never pays any bills for the household or Memory Travel. Larry’s 

name does not appear anywhere on the Glenstone Rooms Contract. Carole’s emails do not suggest that anyone is helping her run the business. There is no 

evidence that Larry received a share of the profits, if there ever were any. There is 

no evidence that Larry ever represented to Glenstone that he was Carole’s business 

partner. The record would not support a finding of partnership or agency. 

There is no factual support for Glenstone’s argument that Miller and Strang

provided a basis for the bankruptcy court to except Larry’s debt from his discharge 

under partnership or agency principles. In fact, Eighth Circuit case law indicates 

the opposite. In the Walker case, the Eighth Circuit analyzed the 

nondischargeability of an innocent spouse’s debt under § 523(a)(2)(A) and 

concluded that “more than the mere existence of an agent-principal relationship is 

required to charge the agent’s fraud to the principal. [. . .] If the principal either 

knew or should have known of the agent’s fraud, the agent’s fraud will be imputed 

to the debtor-principal.” Walker v. Citizens Bank of Maryville, Miss. (In re 

Walker), 726 F.2d 452, 454 (8th Cir. 1984). The Walker court analyzed the 

imputed liability issue as follows: 

Proof that a debtor’s agent obtains money by fraud does not justify the 

denial of a discharge to the debtor, unless it is accompanied by proof 

which demonstrates or justifies an inference that the debtor knew or 

should have known of the fraud. If the debtor was recklessly 

indifferent to the acts of his agent, then the fraud may also be 

attributable to the debtor-principal. [. . .] The debtor who abstains 

from all responsibility for his affairs cannot be held innocent for the 

fraud of his agent if, had he paid minimal attention, he would have 

been alerted to the fraud. 

                                                                                                                                                                                               

purposes; rather, there must be an agency or partnership. Accord Allison v. 

Roberts (In re Allison), 960 F.2d 481, 485-86 (5th Cir. 1992).

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Id. (internal citations omitted). Under Walker, even if there had been evidence that 

Memory Travel was a partnership, it still would not be enough to support the 

nondischargeability of Larry’s debt. Glenstone would have had to prove that Larry 

knew of Carole’s fraud, should have known of Carole’s fraud, or was recklessly 

indifferent to Carole’s fraud, and the record does not support that finding. The 

bankruptcy correctly concluded that there was no evidence that Larry knew of the 

fraud. 

 Finally, the appellants argue in their brief that Walker’s knowledge 

requirement was limited by Miller: “The Miller Court did not impose any type of 

knowledge requirement on the innocent debtor. The Miller court’s absence of any 

such discussion and a Fifth Circuit case [. . .] support this conclusion.” However, 

the Miller court was merely summarizing the general rule on imputed liability for a 

partner’s fraud, while the Walker court actually dealt with the issue of imputed 

liability under agency principles and articulated the circumstances under which a 

principal’s liability for his agent’s fraud may create a nondischargeable debt. The 

Miller court’s silence does not suggest that it was limiting Walker but rather that it 

did not reach that issue. 

In conclusion, there is no legal basis for imputing Carole’s fraud to Larry 

under either partnership or agency principles. Although Larry and Carole 

considered Larry to be an equal owner of Memory Travel, and although he 

accompanied Carole on both the initial site visit and the redhatter event, the 

evidence overwhelmingly supports the conclusion that he was oblivious to the 

operations of the business, merely tagged along with Carole at her request and 

helped out at her direction. The record would not support a finding that Larry and 

Carole had a partnership or agency relationship, or that Larry knowingly 

participated in the fraud or should have known of the fraud. We therefore affirm 

the bankruptcy court’s determination that Larry’s debt to Glenstone is 

dischargeable. 

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B. Lien Avoidance 

Section 522(f)(1)(A) provides, “. . . the debtor may avoid the fixing of a lien 

on an interest of the debtor in property to the extent that such lien impairs an 

exemption to which the debtor would have been entitled . . ., if such lien is—(A) a 

judicial lien.” Under § 522(f)(2)(A), a lien is considered to impair an exemption to 

the extent that “the sum of—(i) the lien; (ii) all other liens on the property; and (iii) 

the amount of the exemption that the debtor could claim if there were no liens on 

the property; exceeds the value that the debtor’s interest in the property would have 

in the absence of any liens.” The debtors have elected the Missouri state 

exemptions. Missouri law provides a $15,000 homestead exemption to be shared 

by spouses. Mo. Rev. Stat. § 513.475 (2008). Glenstone’s only argument on 

appeal is that the bankruptcy court erred “in finding that the judgment lien created 

by the imposition of a judgment as to a non-dischargeable debt would not become 

a lien on the debtors’ residence as a new post-petition lien and in avoiding the 

existing judgment lien of Glenstone Lodge beyond $15,000.” Glenstone’s 

argument regarding “a new post-petition lien” is simply incorrect. There is no 

“new post-petition lien.” There is one prepetition lien, which is either avoidable or 

it is not. Glenstone’s argument mischaracterizes the court’s findings on lien 

avoidance, which were limited to the following: 

Although the parties disputed what effect, if any, a finding of 

nondischargeability would have on the lien avoidance issue, 

Glenstone Lodge has agreed that, due to the value of the Treadwells’ 

home and the amount of the secured debt, its judgment lien would be 

avoidable if the debt were found to be dischargeable. Consequently, 

since I have found that the debt is dischargeable, Glenstone Lodge’s 

judicial lien on the Treadwells’ home will be avoided pursuant to § 

522(f)(1). 

Treadwell, 411 B.R. at 650. The dischargeability of a loan is irrelevant to the 

avoidance of a lien under § 522(f)(1) and § 522(f)(2)(A). In order to determine 

whether a lien is avoidable pursuant to § 522(f)(1), a bankruptcy court must apply 

the statutory formula provided in § 522(f)(2)(A). “Section 522(f)(2)(A) is a 

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congressionally mandated bright line formula for determining how to calculate the 

extent to which a judicial lien impairs an exemption.” Kolich v. Antioch Laurel 

Veterinary Hosp., Inc. (In re Kolich), 273 B.R. 199, 206 (B.A.P. 8th Cir.2002), 

aff’d 328 F.3d 406 (8th Cir. 2003). The dischargeability of the underlying debt is 

therefore not a basis for avoiding or not avoiding the lien under § 522(f)(2)(A). 

We affirm the bankruptcy court’s avoidance of Glenstone’s lien. 

CONCLUSION 

For the reasons stated, we reverse the bankruptcy court’s determination that 

Carole Treadwell’s debt to Glenstone was dischargeable, affirm the bankruptcy 

court’s determination that Larry Treadwell’s debt to Glenstone was dischargeable, 

and affirm the bankruptcy court’s avoidance of Glenstone’s lien. 

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Appellate Case: 09-6023 Page: 16 Date Filed: 02/01/2010 Entry ID: 3629821