Court Opinion

ID: 4233575
Source: CourtListenerOpinion
Date Created: 2017-12-30 01:00:26.128646+00
Date Added: 2024-06-11T07:48:00.904980
License: Public Domain

Case: 17-40229      Document: 00514289510         Page: 1    Date Filed: 12/29/2017

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                         United States Court of Appeals

                                      No. 17-40229
                                                                                  Fifth Circuit

                                                                                FILED
                                                                        December 29, 2017

In the Matter of: RANDALL LEE HALER                                        Lyle W. Cayce
                                                                                Clerk
                                                 Debtor
RANDALL HALER,

                                                 Appellant
v.

BOYINGTON CAPITAL GROUP, L.L.C.,

                                                 Appellee

                   Appeal from the United States District Court
                        for the Eastern District of Texas
                             USDC No. 4:16-CV-185

Before KING, DENNIS, and COSTA, Circuit Judges.
PER CURIAM:*
       Randall Lee Haler filed for Chapter 7 bankruptcy. Boyington Capital
Group, L.L.C., then filed a complaint, requesting that a state court judgment
debt be declared non-dischargeable pursuant to 11 U.S.C. § 523(a)(2), (4),
and (6). Boyington then filed a motion for partial summary judgment. The
bankruptcy court granted summary judgment in favor of Boyington. It found

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 17-40229
that the debt, which was obtained by Haler’s false representations, was non-
dischargeable under § 523(a)(2)(A). The district court affirmed the grant of
summary judgment. Haler now appeals. Because Haler’s representations were
statements respecting financial condition, his debt is outside the scope of the
§ 523(a)(2)(A) exception. We REVERSE.
                                       I.
      Randall Lee Haler was the Executive Vice President and a limited
partner of McKinney Aerospace, L.P. (“McKinney”), a company that repaired
and refurbished business jets. In March 2006, McKinney entered into four
contracts with Boyington Capital Group, L.L.C. (“Boyington”), to repair and
restore a Boyington jet. In April 2006, Boyington tendered a payment of
$337,275 to McKinney. Subsequently, the parties agreed on a change order.
On June 6, 2006, Boyington tendered an additional $60,000 for that change
order. However, later on the same day, Boyington sent a letter to McKinney,
asking McKinney to stop work on the jet and to refund any money paid but not
yet spent. While McKinney acknowledged that it needed to return money to
Boyington, it did not issue any refunds.
      A month later in July 2006, Boyington sued Haler and other parties in
Texas state court for, inter alia, fraud under state law theories of recovery. At
the trial, Greg Morse of Boyington stated that Haler had expressed to
Boyington that McKinney was in “very fine legally [sic] financial shape” and
had “plenty of cash to operate [the] business during the term that [it was]
working on” the jet. The jury found, inter alia, that Haler’s representations
were false and that Haler was therefore liable for fraud. The jury returned a
verdict in favor of Boyington and awarded $258,021.73 in damages. The state
district court issued a final judgment on December 6, 2011. Haler appealed,
but the Texas appeals court affirmed the final judgment with respect to all

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issues except for attorneys’ fees. In June 2015, the state district court issued
an amended judgment, which became final and non-appealable.
      After the entry of the jury verdict but before the December 2011 final
judgment, Haler filed a voluntary Chapter 7 bankruptcy petition in June 2010.
Boyington then initiated this adversary proceeding in September 2010, seeking
a declaration that the state court judgment debt is non-dischargeable pursuant
to 11 U.S.C. § 523(a)(2), (4), and (6). After the state court issued the amended
judgment in June 2015, Boyington filed a motion for partial summary
judgment. It argued that the debt is non-dischargeable pursuant to
§ 523(a)(2)(A) and (a)(4) as a matter of law because Haler is collaterally
estopped from relitigating the determinations rendered in state court
concerning his fraud. The bankruptcy court granted Boyington’s motion. It
decided that collateral estoppel applied and then declared the debt non-
dischargeable under § 523(a)(2)(A). In doing so, it rejected Haler’s argument
that his oral statements were outside the scope of § 523(a)(2)(A) because they
pertained to McKinney’s financial condition. Haler appealed, but the district
court affirmed the bankruptcy court’s decision. Haler then timely appealed to
this court. He now contends that his representations that (1) McKinney was in
“very fine legally [sic] financial shape” and (2) it had “plenty of cash to operate
[the] business” were “statement[s] respecting . . . financial condition” under
§ 523(a)(2)(A) and thus dischargeable under this subsection.
                                        II.
      We review a bankruptcy court’s findings of fact for clear error and its
conclusions of law de novo. See Judgment Factors, L.L.C. v. Packer (In re
Packer), 816 F.3d 87, 91 (5th Cir. 2016). The meaning of “statement respecting
. . . financial condition” in 11 U.S.C. § 523(a)(2) is a question of law, which we
consider de novo. See Bandi v. Becnel (In re Bandi), 683 F.3d 671, 674 (5th Cir.
2012). The bankruptcy court granted summary judgment in favor of Boyington,
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which is proper when “there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” In re Packer, 816 F.3d
at 91 (quoting Fed. R. Civ. P. 56(a)).
      In a Chapter 7 bankruptcy proceeding, a court discharges many of the
debtor’s preexisting obligations. See 11 U.S.C. § 727. While the general purpose
of the Bankruptcy Code is to provide debtors with a “fresh start,” there are
several statutory exceptions to discharge. In re Bandi, 683 F.3d at 674. Some
debts incurred as a result of the debtor’s fraud or other misconduct cannot be
discharged. See 11 U.S.C. § 523. At issue here is whether the exception to
discharge set forth in 11 U.S.C. § 523(a)(2)(A) applies to Haler’s oral
statements, thus rendering the state court judgment debt non-dischargeable.
This issue turns on whether his oral statements qualify as “statement[s]
respecting . . . financial condition.” Id. § 523(a)(2)(A). If his statements indeed
qualify, then they are outside the scope of § 523(a)(2)(A) and therefore subject
to discharge. See In re Bandi, 683 F.3d at 674.
      The phrase “statement respecting . . . financial condition” appears in
subsections (A) and (B) of 11 U.S.C. § 523(a)(2):
      (a) 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 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[1] financial condition;
                    (B) use of a statement in writing—
                          (i) that is materially false;
                          (ii) respecting the debtor’s or an insider’s
                          financial condition;

      1Haler’s statements pertained to McKinney. Boyington pleaded (and it is undisputed)
that McKinney is an insider of Haler.
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                              (iii) on which the creditor to whom the debtor is
                              liable for such money, property, services, or
                              credit reasonably relied; and
                              (iv) that the debtor caused to be made or
                              published with intent to deceive; . . . .
(emphasis added). Section 523(a)(2)(A) generally renders debt obtained by false
pretenses, false representations, or actual fraud non-dischargeable. See In re
Bandi, 683 F.3d at 674. But it contains an exception: if the debt is obtained by
a false oral statement respecting financial condition, then it is dischargeable.
See id. In contrast, a false written statement respecting financial condition is
non-dischargeable under § 523(a)(2)(B), provided that the other conditions in
this subsection are met. See id.
       In In re Bandi, we held that statements respecting financial condition
are “those that purport to present a picture of the debtor’s overall financial
health.” Id. at 677 (quoting Cadwell v. Joelson (In re Joelson), 427 F.3d 700,
714 (10th Cir. 2005)). We stated that “financial condition” meant “the general
overall financial condition of an entity or individual, that is, the overall value
of property and income as compared to debt and liabilities.” Id. at 676. A
representation regarding a specific asset “says nothing about the overall
financial condition of the person making the representation or the ability to
repay debt.” 2 Id. “Ownership of specific assets does not mean that the assets
are unencumbered or that other debts or liabilities of the owner do not exceed
the value of the assets.” Id. at 678–79. We also stated that “financial condition”

       2 Currently, there is a circuit split regarding whether a representation about a specific
asset can qualify as a statement respecting financial condition under 11 U.S.C. § 523(a)(2).
We concluded in In re Bandi that such a representation cannot qualify. See 683 F.3d at 676.
The Tenth and Eighth Circuits have held the same. See In re Joelson, 427 F.3d at 706–07;
Rose v. Lauer (In re Lauer), 371 F.3d 406, 413 (8th Cir. 2004). But the Eleventh and Fourth
Circuits have reached the opposite conclusion. See Appling v. Lamar, Archer & Cofrin, LLP
(In re Appling), 848 F.3d 953, 961 (11th Cir. 2017), petition for cert. filed, (Apr. 11, 2017) (No.
16-1215); Engler v. Van Steinburg (In re Van Steinburg), 744 F.2d 1060, 1061 (4th Cir. 1984).
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                                    No. 17-40229
connoted the “overall net worth of an entity or individual.” Id. at 676; see id. at
675 (noting that the Supreme Court had previously “seemed to equate a
‘statement’ about ‘financial condition’ with what is commonly understood as
something akin to a balance sheet or bank balance” (citing Field v. Mans, 516
U.S. 59, 76–77 (1995))). Finally, we decided that the debtors’ representations
in In re Bandi regarding the ownership of three properties (i.e., a commercial
building, a condominium development, and a residence) were not statements
respecting financial condition. Id. at 678. Their representations fell short of
conveying the debtors’ net worth or “overall financial condition and consequent
ability to pay.” See id.
      Haler’s representations were “statement[s] respecting . . . financial
condition” and therefore outside the scope of § 523(a)(2)(A). The statements at
issue are (1) that McKinney was in “very fine legally [sic] financial shape” and
(2) that McKinney had “plenty of cash to operate [the] business during the term
that [it was] working on” the jet. These representations pertained to the overall
financial strength and stability of McKinney. In its complaint filed in the
bankruptcy court, Boyington stated that “Haler misrepresented the financial
strength and capability of McKinney” (emphasis added). In its motion for
partial summary judgment, Boyington again stated Haler had expressly
represented “that McKinney Aerospace had the experience, competence and
financial stability to perform the repair and restoration work” (emphasis
added). Whereas the misrepresentations concerned the debtors’ specific assets
(i.e., the properties) in In re Bandi, id. at 674, Haler’s representations were
general and intimated that the overall value of McKinney’s property and
income was greater than its debt and liabilities. Thus, his statements
“present[ed] a picture” of McKinney’s “overall financial health,” id. at 677
(quoting In re Joelson, 427 F.3d at 714).

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                                  No. 17-40229
      Boyington argues that Haler’s statements were not akin to a balance
sheet or income statement and therefore did not present a picture of overall
financial health. This contention is unavailing. As we noted in In re Bandi, a
statement respecting financial condition “need not carry the formality of a
balance sheet, income statement, statement of changes in financial position, or
income and debt statement.” Id. at 677 n.29 (quoting In re Joelson, 427 F.3d at
714). The information regarding “overall net worth or overall income flow”
contained within such a statement—not the formality of the statement—is
what is important. Id. (quoting In re Joelson, 427 F.3d at 714).
      In sum, we conclude that Haler’s statements represented that McKinney
was overall financially sound. These oral representations were “statement[s]
respecting . . . financial condition” and thus did not render the debt non-
dischargeable under § 523(a)(2)(A).
                                       III.
      For the foregoing reasons, we REVERSE the grant of summary judgment
in favor of Boyington.

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