# U ni te d S ta te s Co ur t of A pp ea ls
For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 2- 11 38

__ __ __ __ __ __ __ __ __ __ __ __ __ _

In re: Jef frey Scot t Un te rrei ne r; Li sa Mari e Unt erre in er

ll ll ll ll ll ll ll ll ll ll l Deb to r s

----- ----- ----- ----- ----- -----

The Sam ue l J . Tem

pe rat o R ev oc ab le Trus t

ll ll ll ll ll ll ll ll ll ll l

App el la nt

v.

Je ffre y Sco tt Unt erre in er; Lis a Ma rie Unt erre in er

ll ll ll ll ll ll ll ll ll ll l

App el le e s

__ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s B an kr

up tc y App el la te Pan el for th e Eig ht h C irc ui t

__ __ __ __ __ __

Su bm it te d: Sep te m

be r 19 , 20 12 Fil ed : No ve m

be r 8, 2 01 2

__ __ __ __ __ __

Befo re MELLOY an d B ENTON, Ci rcu it Ju dg es , and BAKER, Dis tri ct Ju dg e. 1

__ __ __ __ __ __

The Hon or ab le Kris ti ne G. Bak er, Uni te d St at es Dis tri ct Ju dg e fo r th e East ern 1
Dis tri ct of Ark an sa s, s it ti ng by des ig na ti on

.MELLOY, Circu it Ju dg e.

Je ffre y an d Lis a Unt erre in er (to ge th er, "t he Unt erre in ers ") fil ed fo r ba nk ru pt cy

on Octo be r 30

, 20 06

. The Sam ue l J. Tem

pe rat o Rev oc ab le Trus t ("t he Trus t" ) fil ed

an Adv ers ary Co m

pl ai nt ag ai ns t th e Unt erre in ers , cl ai m in g th e Unt erre in ers owe d a

no nd is ch arg eab le de bt to th e Tru s t u n d e r 1 1 U.S.C. § 52 3. The Ban kr up tc y Co ur t

gr an te d s um m ary jud gm en t t o th e Trus t. The Ban kr up tc y App el la te Pan el ("B AP")

rev ers ed

, ho ld in g th at th e Tr u s t was no t en ti tl ed to jud gm en t as a m at te r of la w be cau se th e Trus t co ul d no t m eet th e st at ut or y req ui rem en ts of 11 U.S.C. § 52 3. The

Trus t ap pe al ed . W e aff

irm.

I.

Mr. Unt erre in er an d Ed Rad et ic w e r e s ol e sh areh ol de rs of Kin g W il li am 2

Man ag em en t Co m

pa ny ("Ki ng W il li am "). Kin g W il li am op erat ed th ree Dair y Que en

st or es in Mi ss ou ri. Dair y Que en of Great er St

. Lou is ("DQSTL") was th e fran ch is or of Kin g W il li am 's st or es

. The Trus t own s D Q S TL

. C r e st Oelk e ("Oe lk e") was a

tru st ee o f th e Tru st . Oelk e was als o a ffi li at ed wit h DQSTL.

In Decem be r 20 05

, Kin g W il li am was in su ch po or fin an ci al sh ap e th at it co ul d

no t co nt in ue to op erat e wit ho ut a l o a n

. O e l ke arra ng ed fo r Cas s Ban k ("C as s" ) to
make a lo an of $2 35 ,00 0 ("t he lo an ") to Kin g W il li am

. To se cu re t h e l o a n , t h e
Unt erre in ers si gn ed pe rs on al gu aran te es as well as a Co m m erci al Secu rity Agr eem en t ("S ecu rit y Agr eem en t" ). DQSTL al so gu aran te ed th e lo an

. The Unt erre in ers di d no t

sp eak wit h Oelk e, w i t h an y on e fro m th e Trus t, wit h an y on e fro m Cas s, or wit h

an y on e fro m DQSTL be fo re si gn in g th e lo an do cu m en ts

. In de ed

, un ti l th e Trus t fil ed

it s Co m pl ai nt
, th e Unt erre in ers di d no t kn ow th e Trus t own ed D Q STL an d di d no t

ev en kn ow t he Trus t ex is te d.

Neit he r Ed Ra de ti c n or hi s wi fe i s a p art y to th is act io n. 2

-2

-Th e S e cu rit y Agr eem en t li st ed Kin g W il li am as bo rro wer. The Secu rit y

Agr eem en t li st ed th e Unt erre in ers an d Ed R a d e t i c an d hi s wife as th e gu aran to rs

. Fi na ll y , th e Secu rit y Agr eem en t li st ed "al l bu si ne ss as se ts lo cat ed at 10 36 N. Sp rig g
St reet
, Cap e Gira rd eau , MO 63 70 1 an d 31 S. Kin gs hi gh way , Cap e Gira rd eau , MO

63 70 3" as co ll at eral

. So m e fo ur y ears be fo re Cass m ad e th e lo an to Kin g W il li am , 3

th e Trus t ha d si gn ed a se pa rat e ag reem en t wit h C a s s u n d er whi ch th e Trus t

gu aran te ed al l of DQSTL's ob li ga ti on s to C a s s. Howev er, th e Trus t was no t

m en ti on ed in th e Secu rit y Agr eem en t an d was no t a gu aran to r o f th e Kin g W il li am lo an , exc ep t i n i ts cap aci ty as a b la nk et gu aran to r of DQSTL.

Cas s di st rib ut ed th e lo an di rect ly to DQSTL. DQSTL ret ai ne d a po rti on of th e lo an as pa rti al rep ay m en t of Ki n g Wi l li am 's ou ts ta nd in g de bt to DQSTL un de r th e fran ch is e ag reem en t an d di st rib ut ed th e rem ai nd er of th e lo an to Kin g W il li am

. App ro xi m at el y a y ear aft er Cas s di st rib ut ed th e lo an , Mr. Unt erre in er in fo rm ed Cas s th at
, co nt rary to st at em en ts in th e Secu rit y Agr eem en t, Kin g W il li am di d no t act ua ll y

own m os t of th e co ll at eral

. Thu s, th e Secu rit y Agr eem en t co nt ai ne d a

m is rep res en ta ti on

. The Unt erre in ers cl ai m ed th ey di d no t read th e lo an do cu m en ts
, in cl ud in g t he Secu rit y

Agre em en t, b efo re s ig ni ng

.

Kin g W il li am de fau lt ed on th e lo an in Decem be r 20 07

, an d Cas s pu rs ue d th e
Unt erre in ers on th ei r gu aran ty. O n J u n e 2 0, 20 08

, Cas s rel eas ed th e Unt erre in ers fro m an y fu rth er li ab il it y on th e lo an in ex ch an ge fo r a pa y m en t of $2 0,0 00

. Cas s th en m ad e a de m an d on th e Trus t fo r pa y m en t of th e ou ts ta nd in g ba la nc e of th e lo an

.

On Octo be r 31

, 20 0 8

, th e Trus t fil ed an Adv ers ary Co m pl ai nt ag ai ns t th e
Unt erre in ers

. The Trus t cl ai m ed th e Unt erre in ers , as co -g ua ran to rs of th e lo an , owe d

10 36 N. Sp rig g Stre et an d 31 S. Kin gs hi gh way were ev id en tl y th e lo cat io ns 3
of two of Ki ng W il li am 's Dai ry Quee n s to res

.

-3

-a de bt to th e Trus t th at was n o n d i s c h arg eab le un de r 11 U.S.C. § 52 3. The Trus t 4

cl ai m ed it ha d reas on ab ly rel ie d on th e m is rep res en ta ti on in th e Secu rit y Agr eem en t
whe n it gu aran te ed DQSTL's ob li ga ti on s an d whe n it al lo wed DQSTL to gu aran ty th e lo an

. The Trus t al so al le ge d th e Unt erre in ers kn ew th e Secu rit y Agr eem en t co nt ai ne d

a m is rep res en ta ti on at t he ti m e th e Unt erre in ers si gn ed th e Sec ur it y Agre em en t.

The Trus t m ov ed fo r su m m ar y jud gm en t. The Ban kr up tc y Co ur t fo un d th at DQSTL ha d reas on ab ly rel ie d on th e Unt erre in ers ' m is rep res en ta ti on whe n DQSTL

gu aran te ed th e lo an

. The Ban kr up tc y Co ur t he ld th at th e Unt erre in ers ' ob li ga ti on to
th e Tru st was n on di sc ha rg eab le an d g ran te d s um m ary jud gm en t t o t he Trus t.

The Unt erre in ers ap pe al ed

, an d th e BAP rev ers ed

. The BAP he ld th at th e Trus t

c o u l d n o t fu lfi ll th e st at ut or y req ui rem en ts un de r § 52 3( a)(2 )(B) to ren de r a de bt

no nd is ch arg eab le

. The BAP co nc lu de d (1 ) th e Unt erre in ers di d no t rece iv e an y th in g fro m th e Trus t whe n th e Unt erre in ers m ad e th e m is rep res en ta ti on ; (2 ) th e Trus t co ul d

no t ha ve rel ie d on th e Secu rit y Agr eem en t whe n it gu aran te ed DQSTL's ob li ga ti on s, be cau se th e Trus t a g reed to gu aran ty DQSTL's ob li ga ti on s y ears be fo re Cas s m ad e th e lo an ; and (3 ) an y rep res en ta ti on s in th e Secu rit y Agr eem en t were m ad e to Cas s,

no t to th e Trus t. Fi na ll y , th e BAP qu es ti o n e d

, b u t di d no t de ci de

, whe th er th e
S e c u rit y Agr eem en t qu al ifi ed as a "wri ti ng res pe ct in g th e de bt or 's fin an ci a l

co nd it io n."

II.

"Su m m ary jud gm en t is ap pr op ria te whe n, vi ewin g th e reco rd in th e li gh t m os t
fav or ab le to th e no nm ov in g pa rty, th ere are no ge nu in e is su es of m at eri al fact an d th e

m ov in g pa rty is en ti tl ed to jud gm en t as a m at te r of la w." Hen ni ng v. Mai ns t reet

Afte r th e Trus t fil ed it s Adv ers ary Co m pl ai nt
, bo th th e Trus t an d DQSTL 4

se tt le d t he ir o bl ig at io ns on th e lo an wit h C as s.

-4

-Ban k, 53 8 F.3 d 97 5, 97 8 (8 th C i r

. 2 0 0 8 )

. " I n an ap pe al fro m th e BAP, th is co ur t

in de pe nd en tl y rev ie ws t h e ba nk ru pt cy co ur t's de ci si on , a pp lying th e sa m e st an da rd

of rev ie w as th e BAP. Fact fin di ng s by th e b an kr up tc y

co ur t ar e rev ie wed for cle ar

erro r; it s co nc lu si on s of la w are rev ie wed de no vo ." Terry v. St an da rd In s. Co

., 68 7

F.3 d 9 61 , 96 3 (8 th Cir . 20 12 ) (ci ta ti on s o m it te d)

.

11 U.S.C. § 5 23 (a)( 2) (B) e xc ep ts fro m di sc ha rg e a d eb t

(2 ) fo r m on ey , pr op ert y , se rv ic es , or an ex te n s io n, ren ewal

, or refi na nc in g o f cre di t, t o t he ex te nt ob ta in ed by - - . . . (B) us e o f a s ta te m en t i n wri ti ng - - (i) th at is m at eri al ly fals e; (ii ) res pe ct in g t he de bt or 's o r an in si de r's fin an ci al co nd it io n; (ii i) on whi ch th e cred it or to who m th e de bt or is li ab l e fo r su ch

m on ey , pro pe rty, serv ic es , or c red it reas on ab ly reli ed ; an d (iv ) th at th e de bt or cau se d to be m ad e or pu bl is he d wit h in te nt to de cei ve

. . . .

"To pr ev ai l un de r § 52 3( a)(2 )(B)

, th e Pl ai nt iff ha s to es ta bl is h by a pr ep on de ran ce of

th e ev id en ce" al l el em en ts of th e st at ut e. Ja co bu s v. Bi nn s, 32 8 B.R. 12 6, 13 0 (B.A.P.

8t h Ci r. 20 05 ). W e ag ree wit h th e BAP th at th e Trus t can no t es ta b l i s h a l l th e el em en ts

. Sp eci f

i c al ly, th e Trus t can no t es ta bl is h th at th e Unt erre in ers ob ta in ed

m on ey , pr op ert y , se rv ic es , or cred it fro m th e Trus t, no r can th e Trus t es ta bl is h th at it

rel ie d o n t he Unt erre in ers ' m is rep res en ta ti on

.

Fi rs t, th e Unt erre in ers di d n o t r e cei ve "m on ey , pr op ert y , se rv ic es , or an

ex te ns io n, ren ewal

, or refi na nc in g of cred it " fro m t h e Tr us t whe n th e Unt erre in ers

m ad e th e m is rep res en ta ti on . As th e BAP s ta te d:

To su ccee d in ha vi ng a de bt ex cep te d fro m di sc ha rg e un de r § 52 3( a)(2 ), th e cred it or is req ui red to pr ov e th at th e de bt or s ob ta in ed m on ey , pr op ert y , se rv ic es or an ex te ns io n, ren ewal or refi na nc in g of cred it fro m it at th e ti m e of th e m is rep res en ta ti on

. Mar cu se n v. Glen (In re Glen ),

-5

-63 9 F.3 d 53 0, 53 3 (8 th Ci r. 20 11 ) (ci ti ng In re Dou gh ert y , 17 9 B.R. 31 6,

32 2 (Ban kr

. M.D. Fl a. 19 95 ) ("I n ot he r wor ds

, th e de bt or hi m se lf m us t ha ve ob ta in ed th e m on ey or pr op ert y an d he m us t ha ve rece iv ed it fro m th e cl ai m an t." )). The rep res en ta ti on s in th e [Sec ur it y Agr eem en t] were 5

m ad e to [Cas s], n ot to th e Trus t, an d th e lo an was m ad e by [C as s], no t by th e Trus t. Si m

p l y s t a te d, Mr. an d Mrs

. Unt erre in er di d no t rece iv e

an y m on ey or pr op ert y fr om th e Trus t co nc ur ren t wit h th e rep res en ta ti on

.

The Trus t su gg es ts th e Unt erre in ers rece iv ed th e gu aran ty of DQSTL co nc ur ren t wit h

th e m is rep res en ta ti on , bu t as th e BAP po in te d ou t, DQSTL is no t a pa rty to th is

act io n. W he th er or no t th e gu aran ty of DQSTL fal ls wit hi n § 52 3( a)(2 ) is no t at is su e.

S e c o nd

, th e Trus t can no t sh ow it reas on ab ly rel ie d on th e Unt erre i n e r s '

m is rep res en ta ti on whe n it gu aran te ed DQSTL's ob li ga ti on s. The Trus t's li ab il it y fo r th e lo an aro se fro m th e Trus t's bl an ke t gu aran ty of DQSTL's ob li ga ti on s to Cas s, no t
fro m th e lo an ag reem en t. The Trus t's bl an ke t gu aran ty pr ed at ed th e lo an by so m e fo ur y ears

. As th e BAP no te d, "[s ]inc e th e Trus t's gu aran ty was al read y in ex is te nc e, it co ul d no t p o s si bl y ha ve rel ie d on th e m is rep res en ta ti on s in th e [Sec ur it y
A g r e e m en t]." W he th er DQSTL rel ie d on th e Secu rit y Agr eem en t in m ak in g i t s

gu aran ty of th e lo an is no t at is su e b ecau se DQSTL is n ot a pa rty to t hi s ac ti on

.

Si nc e th e Trus t can no t m eet at le as t two of th e st at ut or y req ui rem en ts
, we ne ed

no t add res s th e rem ai ni ng req ui rem en ts

. W e do no t de te rm in e whe th er th e Secu rit y Agr eem en t was a st at em en t "re sp ect in g th e de bt or 's o r an in si de r's fin an ci al

co nd it io n." Fu rth erm or e, we ne ed no t rev ie w th e ad di ti on al is su es of m at eri al fact th e
Unt erre in ers rai se , in cl ud in g whe th er th e Trus t is a cred it or to who m th e Unt erre in ers

Alt ho ug h Glen in vo lv ed § 52 3( a)(2 )(A), an d no t § 52 3( a)(2 )(B)

, bo th se ct io ns 5
sh are th e req ui rem en t un de r su bs ect io n (2 ) t h a t th e de bt be fo r "m on ey , pr op ert y , se rv ic es or a n e xt en si on , ren ewal , or re fin an ci ng of c red it ."

-6

-are li ab le an d w h e t h e r th e Unt erre in ers m ad e th e m is rep res en ta ti on wit h in te nt to

de cei ve

. 6

III.

The Trus t is no t en ti tl ed to jud gm en t as a m at te r of la w be cau se it can no t m eet
al l th e req ui rem en ts of § 52 3( a)(2 )(B) to ex cep t a de bt f r o m d i s c h a rg e. The

Unt erre in ers di d no t ob ta in m on ey , pr op ert y , or se rv ic es fro m th e Trus t, an d th e Trus t
di d no t rel y on th e Unt err e i n ers ' m is rep res en ta ti on whe n it gu aran te ed DQSTL's

ob li ga ti on s. W e affi rm th e BAP's ru li ng , va cat e th e award of su m m ary jud gm en t to
th e Tru st , and di rect jud gm en t fo r th e Unt erre in ers

.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

W e di sm is s th e Trus t's arg um en t th at it m ay reco ve r fro m th e Unt erre in ers on 6
th e ba si s th at "a gu aran to r who sa ti sf ie s a jud gm en t whi ch ha s be en ren de red ag ai ns t
ot he r co gu aran to rs joi nt ly an d se ve ral ly, is su br og at ed to cred it or 's rig ht s as jud gm en t cred it or ag ai ns t th e ot he r co gu aran t o r s ." The Trus t ha s no t sa ti sf ie d an y jud gm en t
ag ai ns t th e Unt erre in ers

. W e al so di sm is s th e su gg es ti on th at th e Trus t m ay reco ve r fro m th e Unt erre in ers by st a n d i ng in th e sh oe s of Cas s as a cred it or

. The Trus t

rece iv ed no ass ig nm en t fr om Cas s. Mo reo ve r, ev en ass um in g th e Trus t co ul d ra is e Cas s's rig ht s ag ai ns t th e Unt erre in ers , Cas s rel eas ed th e Unt erre in ers fro m an y fu rth er li ab il it y fo r th e lo an —Ca ss ha s no su rv iv in g rig ht s ag ai ns t th e Unt e r r e i ne rs , so th e Trus t wo ul d h av e n o ri gh ts to ass ert

.

-7

-