Opinion ID: 206330
Heading Depth: 3
Heading Rank: 2

Heading: bap

Text: Glenstone appealed to the BAP, maintaining the Treadwells' debt to Glenstone was excepted from discharge under 11 U.S.C. § 523(a)(2)(A). As relevant here, Glenstone argued (1) the bankruptcy court erred in finding Glenstone did not justifiably rely on Carole's misrepresentations, and (2) the Treadwells were partners in Memory Travel, so Carole's fraud should be imputed to Larry. The Treadwells defended the bankruptcy court opinion. The Treadwells did not discuss the imputed fraud issue. The BAP reversed in part and affirmed in part. The BAP reversed the bankruptcy court's determination that Carole's debt to Glenstone was dischargeable. The BAP held the bankruptcy court clearly erred in finding no justifiable reliance under the minimal standard set forth in Field v. Mans, 516 U.S. 59, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). Stressing the Fling appeared to be a complete success and there was no evidence in the record Carole had defrauded anyone before, the BAP held as a matter of law that there were no obvious warning signs of falsity. The BAP affirmed the bankruptcy court's determination that Larry's debt to Glenstone was dischargeable. Citing Sells v. Porter (In re Porter), 375 B.R. 822, 828 (8th Cir. BAP 2007) for the proposition that the BAP may affirm the bankruptcy court's decision on any basis supported by the record, the BAP considered the imputed fraud issue. The BAP raised and ruled on imputed fraud despite the fact that: (1) the Treadwells had conceded the issue in the bankruptcy court, (2) the bankruptcy court had not decided the question, and (3) the Treadwells had not briefed this issue to the BAP. The BAP observed, if [the bankruptcy court] had [analyzed the imputed fraud issue], the record would not have supported a finding that Larry was a partner in Carole's travel business. The BAP found: [T]here 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. In other words, because the 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 [contract]. Carole's e-mails 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. In the alternative, the BAP found: 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 [court] correctly concluded that there was no evidence that Larry knew of the fraud. The BAP summarized its holding with respect to Larry as follows: In conclusion, there is no legal basis for imputing Carole's fraud to Larry. . . . 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 [R]edhatter 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. Glenstone appeals the BAP's affirmance of the bankruptcy court's determination that Larry's debt to Glenstone is dischargeable under § 523(a)(2)(A). Carole did not cross-appeal.