In re Krizan, 20-10231-7

In re: BEVERLY A. KRIZAN, Debtor.

TRAVIS P. KRIZAN and RONALD V. KRIZAN, Plaintiffs, v. BEVERLY A. KRIZAN, Defendant.

No. 20-10231-7

Adversary No. 20-15

United States Bankruptcy Court, W.D. Wisconsin

July 15, 2021

DECISION

Hon Catherine J. Furay U.S. Bankruptcy Judge

Plaintiffs Travis Krizan and Ronald Krizan filed a complaint seeking a determination that debts owed by Beverly Krizan and others^[1] are non-dischargeable pursuant to 11 U.S.C. § 523(a)(2) as having been incurred by false pretenses, misrepresentation, or actual fraud.

After hearing the arguments of counsel, considering all the documentary and testimonial evidence and weighing the credibility of the witnesses, the Court issues this decision constituting the Court's findings of fact and conclusion of law.^[2]For the reasons more fully described below, the Court finds that Travis and Ronald have met their burden of proof that debts owed by Beverly to them are nondischargeable as set forth below. A separate judgment will be entered pursuant to Rule 9021.

Jurisdiction

The Court has jurisdiction over this matter under 28 U.S.C §§1334(a) and (b) and 157(a) and (b). This is a core proceeding under 28 U.S.C. §157(b)(2)(I) as it concerns a determination about the dischargeability of a particular debt. Venue is proper under 28 U.S.C. §§ 1408 and 1409.

Background

Beverly and her husband Daniel were dairy farmers. She was also a teacher. Beverly and Daniel defaulted on their mortgage to Farm Credit Services ("FCS") and a foreclosure was filed. Beverly and Daniel, helped by Dale and Scott, engaged in many acts to delay the foreclosure. They:

• Quitclaimed the property to an Otis Williams for no consideration.

• Williams filed a real estate UCC four days later.

• They signed an offer to purchase from Chad and Beverly Webster on May 2, 2013. Scott also signed the offer.

• Ten months later, Beverly and Daniel gave life estates to Scott and Dale by quit claim deeds.

• On March 25, 2014, Otis Williams quitclaimed the property back to Daniel and Beverly. But his UCC security interest was not released or satisfied until June 22, 2015.

• Eventually Dale and Scott quitclaimed their life estate in the property back to Daniel and Beverly.

• Another offer by the Websters was dated March 27 2014.

Dale was the architect of the efforts other than the Webster offer. He admits discovering the tactics from the internet and seminars. The efforts slowed but did not stop the foreclosure. A sheriffs sale of the property was scheduled for April 1, 2014.

While stories diverge about the initiation of conversations, on March 27, 2014, there was a meeting among Travis, Ronald Scott, Daniel, and Beverly. The meeting occurred at the home of Beverly and Daniel. The location of the meeting is described as a kitchen and dining room separated by an island. Daniel and Ronald were seated at the dining table Scott and Travis were at the island, and Beverly was in the kitchen.

Beverly did not testify. Scott confirmed she was present at the meeting. He tried, unconvincingly, to suggest Beverly was not paying attention to the discussion by saying she was busy cooking. Ronald and Travis agree she was cooking but testified credibly that she was aware of and participated in the discussion about the terms for a sale. Not only was she part of the discussion, they plausibly testified she made requests about improvements to the property as part of the rental after a sale.

The terms for the sale to Travis and Ronald were discussed and agreed upon. Travis, Ronald, Beverly, Daniel, and Scott all signed a handwritten offer. Two days later, that offer was replaced with an offer on the more detailed Wisconsin Realtor form. Again, it was signed by Plaintiffs, Beverly, Daniel, and Scott. The offer said a down payment in the amount of $430, 000 would be made. The down payment was the amount needed to pay off the FCS mortgage. The possibility this was a secondary offer to a prior accepted offer such as the Webster offer was marked "n/a."

Travis, Ronald, Beverly, Daniel, and Scott went to FCS on March 28, 2014. Travis and Ronald each paid $215, 000 to FCS. The half of the payment from Travis was funds he borrowed. FCS then released and satisfied its mortgage.

Ronald and Travis credibly testified they did not know about the Webster offer when they paid FCS. They very sincerely testified if they had been told about the Webster offer they would not have made the payment without other steps and protections, including taking an assignment of the note and mortgage from FCS. The reasons for this position were explained and are credible. Travis's experience in real estate transactions further supports the credibility of his testimony.

Scott said he did tell Travis about the Webster offer before the offer from Travis and Ronald and before the payment to FCS. This testimony was not credible at all. Scott also said he thought the Webster offer was invalid. His testimony was disingenuous.

Scott's claim that Travis was aware of the Webster offer was further contradicted by Scott himself. Scott was served with a lis pendens on April 6. Scott testified that he talked to his parents about the Webster lawsuit and that they responded they wanted to proceed with a sale to Travis. This discussion could not have occurred until the day before the closing. Title work for a closing with Ronald and Travis was prepared, and on April 7, Ronald, Travis, Beverly, Daniel, and Scott attended a closing. Yet, at the closing, Scott, Daniel, and Beverly all proceeded to sign documents and act as if there was no Webster offer. After the documents were signed, the title agent then conducted a quick update of the title search only to discover that the Websters had filed the lis pendens that was served on Scott the day before. Scott admitted he was aware of the lis pendens and had discussed it with Beverly and Daniel. The three decided to proceed with the closing and remain silent about the Webster offer. It was not until the closing agent returned to the room and said the closing could not continue because of the lis pendens that Ronald and Travis became aware of the Webster offer. The reaction of Scott, Daniel, and Beverly was to maintain the Webster offer was not enforceable. In response, the title agent suggested they talk to a lawyer.

Ronald and Travis testified they were told the Webster lis pendens was a mistake and that the Webster offer had never been delivered. They say this was the first time they were told anything about another offer. This view was reinforced by the statements made by either Scott or Daniel that the Webster offer was not valid.

Beverly, Daniel, and Scott all submitted an answer in a declaratory judgment action the Websters brought to enforce their offer. The answer said:

. . . deny that they have entered into a written Offer to Purchase with the Plaintiff's [Webster] which was identified in Exhibit A dated May 2, 2013, upon information and belief of the Defendants, the Offer to Purchase may have been signed but was never delivered and was in the house of the Krizan's . . . and was never delivered to the Plaintiffs but the Plaintiff [Webster] came upon the premises, entered the premises and upon deceit and misrepresentation obtained a copy of the Offer to Purchase. The Defendants never intended to release that signed Offer to Purchase to the Plaintiffs and is unknown other than upon information and belief as to how the Plaintiff's obtained the original document from the household of the Defendants.

ECF No. 37, Exh. 39 at 1.

A few days later, an amended answer was filed by Beverly, Daniel, and Scott. The only change to the above portion of their answer was the addition of the phrase "upon information and belief" to the claim the Websters "came upon the premises." Both the answer and the amended answer filed shortly after were filled with claims that the Webster offer was not valid, that the Websters purloined the offer, there was no closing date, and that no action was taken by Beverly, Scott, or Daniel to close with Webster.

In an about-face, the position of Beverly, Scott, and Daniel changed a little more than ten months later. After being deposed in February 2015, they admitted that the Webster offer had been delivered to the Websters by Scott. Delivery was with the knowledge of Beverly. No explanation was provided for this change of position other than the claim by Scott that (1) the Websters hadn't scheduled a closing, (2) the Websters prepared a new offer, and (3) the Websters said if the new offer was not accepted they would simply bid at the sheriff sale. None of this explained the failure of Scott and Beverly to disclose the Webster offer to Plaintiffs before any payment to FCS.

At the trial in this adversary proceeding, Scott says this led him to believe the accepted Webster offer was no longer good. He also asserted, unconvincingly and incredibly, that he had told Ronald and Travis about the Webster offer before Ronald and Travis made their offer. This testimony was not believable.

Ronald and Travis intervened in the state court action. Their testimony that they believed the Webster offer was invalid was credible and supports their action of intervening.

A state court decision was issued finding the Websters had the primary offer. Appeals ensued. Ultimately there was a sale to the Websters. The circuit court and state court of appeals found Travis and Ronald were entitled to repayment from the Webster closing of the amount they paid to FCS. The appeals court declined to award interest but remanded the matter to the circuit court for further proceedings on the claims of Ronald and Travis against Beverly, Daniel, Scott, and Dale.

On August 28, 2017, Ronald and Travis received $430, 000.

B...