Auction Credit Enters. v. Desouza (In re Desouza)

659 B.R. 288

IN RE: Valdineia F. DESOUZA, Debtors.

Auction Credit Enterprises, LLC, Plaintiff v. Valdineia F. Desouza, Defendant

Case No. 22-40141

Adversary No. 22-04026

United States Bankruptcy Court, E.D. Texas, Sherman Division

Signed April 23, 2024

Owen Colin Babcock, Ivan Escobar Gomez, Alan Bartlett Padfield, Padfield & Stout, LLP, Fort Worth, TX, for Plaintiff.

Robert DeMarco, III, Robert Demarco, Dallas, TX, Eric A. Liepins, Legal Aid of Northwest Texas, Dallas, TX, for Defendant.

MEMORANDUM OF DECISION

JOSHUA P. SEARCY, UNITED STATES BANKRUPTCY JUDGE

On this date the Court considered "Motion for Summary Judgment"¹ and "Brief in Support of Motion for Summary Judgment"² (together the "Motion") filed by Auction Credit Enterprises, LLC (the "Plaintiff") on June 6, 2023, and the respective objections, replies, and other related filings.³ Plaintiff seeks to except from discharge an alleged debt of Valdineia F. Desouza (the "Defendant") pursuant to 11 U.S.C. § 523(a)(2)(A), and § 523(a)(4).⁴ After consideration of the pleadings, proper summary judgment evidence, and the relevant legal authorities, the Court concludes that genuine issues of material fact remain. For the reasons explained in this memorandum, Plaintiff's Motion is DENIED.

I. Jurisdiction

The Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1334 and 157. The Court has the authority to enter a final judgment in this adversary proceeding because it constitutes a statutorily core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (I), and meets all constitutional standards for the proper exercise of full judicial power by this Court.

II. Facts and Procedure⁵

Defendant owned a used car dealership which was operated under an assumed name, AutoDallas.com ("AutoDallas").⁶ On December 22, 2020, Plaintiff and Defendant entered into a "Demand Promissory Note and Security Agreement" (the "Note").⁷ Under the Note, Defendant obtained credit from Plaintiff for use purchasing inventory for AutoDallas.⁸ This type of loan is typically known as a floor plan loan. The Note obligated Defendant to "pay" all proceeds from sales of financed inventory to Plaintiff.⁹ In addition to inventory, the Note granted Plaintiff a security interest in some of AutoDallas.com's other property.¹⁰ This security interest was perfected by notation on vehicle titles and the filing of a UCC financing statement.¹¹ The parties also entered into an Unlimited and Continuing Guaranty (the "Guaranty") in which Defendant guaranteed repayment in full of any money loaned under the Note.¹²

According to Plaintiff's Motion, between June 25, 2021 and September 10, 2021, Plaintiff loaned money to Defendant pursuant to the Note to finance the purchase and resale of thirteen different vehicles.¹³ The thirteen vehicles are as follows:¹⁴

Stock #

VIN

Year

Make

Model

10607.72

3N1AB7AP2DL665433

2013

Nissan

Sentra

10607.74

JTJYARBZ0K2143891

2019

Lexus

NX 200t

10607.75

2T2BZMCA6KC188411

2019

Lexus

RX350

10607.76

2C3CA5CG9BH522676

2011

Chrysler

300

10607.77

1FTFX1CF7CFA24342

2012

Ford

F-150

10607.78

KNADH4A35B6918222

2011

Kia

Rio

10607.79

3N1AB7AP6GY248565

2016

Nissan

Sentra

10607.81

3N1CE2CPXEL386121

2014

Nissan

Versa Note

10607.83

KL8CB6S99EC541603

2014

Chevrolet

Spark

10607.84

5NPEB4ACXEH933964

2014

Hyundai

Sonata

10607.86

3N1CN7APXCL921509

2012

Nissan

Versa

10607.87

3N1AB7AP5FY322296

2015

Nissan

Sentra

10607.88

3N1AB7AP9DL636463

2013

Nissan

Sentra.

After AutoDallas sold these vehicles, Plaintiff contends Defendant failed to remit sales proceeds as required by the Note.¹⁵

Plaintiff declared a default under the Note terms on September 29, 2021, and has never been paid proceeds for these vehicles.¹⁶ Plaintiff asserts Defendant, Defendant's agents, or Defendant's partners either: (1) sold these thirteen vehicles to third parties without remitting the proceeds to Plaintiff, (2) gave away these thirteen vehicles in illegitimate transactions without receiving any sales proceeds, or (3) absconded with the vehicles.¹⁷ Plaintiff specifically alleges that certain vehicles were sold without proceeds remitted as required.¹⁸ Plaintiff also alleges Debtor converted a 2014 Chrysler, and represented to Plaintiff that account funds were sufficient to obtain a release of lien on a 2019 Lexus when funds were insufficient, resulting in loss to Plaintiff of the floored value of the Lexus.

Defendant filed her bankruptcy petition January 31, 2022.¹⁹ Plaintiff filed this adversary against Defendant on April 26, 2022.²⁰ Defendant timely answered on May 31, 2022.²¹ After discovery, Plaintiff filed the summary judgment Motion on June 6, 2023.²² Defendant filed a timely objection.²³

III. Summary Judgment Standard

A court may grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting FED. R. CIV. P. 56(c)). Thus, if summary judgment is appropriate, the Court may resolve the case as a matter of law.

The moving party always bears the initial responsibility of informing the court of the basis for its motion and producing evidence which it believes demonstrates the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323, 106 S.Ct. 2548. How the necessary summary judgment showing can be made depends upon which party will bear the burden of proof at trial. See Little v. Liquid Air Corp., 37 F.3d 1069, 1077 n.16 (5th Cir. 1994). "A fact is material only if its resolution would affect the outcome of the action." Wiley v. State Farm Fire and Cas. Co., 585 F.3d 206, 210 (5th Cir. 2009). "All reasonable inferences must be viewed in the light most favorable" to the nonmoving party, and "any doubt must resolved in favor of the nonmoving party." In re Louisiana Crawfish Producers, 852 F.3d 456, 462 (5th Cir. 2017) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). An actual controversy of fact exists where both parties have submitted evidence of contradictory facts. Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir. 1999).

Courts may accept the moving party's version of the facts as undisputed. Alvarez v. United Parcel Serv. Co., 398 F. Supp. 2d 543, 548-49 (N.D. Tex. 2005) (overruled on other grounds); cf. F.D.I.C. v. Foxwood Mgmt. Co., No. 92-2434, 1994 WL 24911, at *6 (5th Cir. Jan. 14, 1994) (citing cases for the proposition that courts can accept the contents of a conclusory affidavit as true if they are unchallenged). This comports with the notion that courts need not hunt through the record searching for a genuine issue of material fact. See Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998); Savers Fed. Savs. & Loan Ass'n v. Reetz, 888 F.2d 1497, 1501 (5th Cir. 1989). Once the movant has met its burden, the nonmovant may not rest upon allegations in the pleadings and still survive summary judgment. Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007). The Court does not, "in the absence of any proof, assume that the nonmoving party could or would prove the necessary facts." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citing Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 111 L.Ed.2d 695 (1990)).

IV. Discussion

Under the standards enumerated, the Court finds genuine issues of material fact exist warranting trial on the merits and denial of the Motion.

A. 11 U.S.C. § 523(a)(2)(A): Actual Fraud, False Pretenses, or False Representations

11 U.S.C. § 523 (a)(2)(A) excepts from discharge debts obtained by "false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition." 11 U.S.C. § 523(a)(2)(A). Plaintiff's Motion appears to seek summary judgment under each of these components of § 523(a)(2)(A) against Defendant.

To obtain a judgment of nondischargeability for false representation or false pretenses, a creditor must demonstrate that a debtor made (1) knowing and fraudulent falsehoods; (2) describing past or current facts; (3) that were relied upon by the other party. Wright v. Minardi (In re Minardi), 536 B.R. 171, 187 (Bankr. E.D. Tex. 2015) (citing Allison v. Roberts (Matter of Allison), 960 F.2d 481, 483 (5th Cir. 1992)). False pretenses and false representations "both involve intentional conduct intended to create or foster a false impression." FNFS, Ltd. v. Harwood (In re Harwood), 404 B.R. 366, 389 (Bankr. E.D. Tex. 2009). A false representation, however, "involves an express statement, while a claim of false pretenses may be premised on misleading conduct without an explicit statement." Id. To succeed under § 523(a)(2)(A), the creditor must prove an intent to deceive. Friendly Fin. Service - Eastgate v. Dorsey (In re Dorsey), 505 F.3d 395, 399 (5th Cir. 2007). A court may infer the requisite intent from a "reckless disregard for the truth or falsity of a statement combined with the sheer magnitude of the resultant misrepresentation." Gen. Elec. Capital Corp. v. Acosta (In re Acosta), 406 F.3d 367, 372 (5th Cir. 2005); see also In re Miller, 39 F.3d 301, 305 (11th Cir. 1994) (considering the totality of the circumstances to determine the debtor's intent).

The Fifth Circuit has stated that actual fraud under § 523(a)(2)(A) may be proven by showing: (1) the debtor made a representation; (2) the debtor knew that the representation was false at the time it was made; (3) the debtor made the representation with the intent and purpose to deceive the creditor; (4) the creditor relied on the representation; and (5) the creditor sustained a loss as the proximate result of its reliance on the representation. Selenberg v. Bates (...