In re Rodriguez

In re: RAUL MANUEL RODRIGUEZ, JR., Debtor.

MIDFIRST BANK, a federally chartered savings association, Plaintiff, v. RAUL MANUEL RODRIGUEZ, JR., Defendant.

No. 20-10168-SAH

Adv. Pro. 20-01047-SAH

United States Bankruptcy Court, W.D. Oklahoma

July 21, 2021

Chapter 7

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Sarah A Hall United States Bankruptcy Judge

A stipulation by the parties sums up what they perceive to be the genesis of MidFirst Bank's ("MidFirst") claim under 11 U.S.C. § 523(a)(2)(A) - "There is a dispute whether [Rodriguez] signed the Loan Documents and the Borrower Information Form or authorized his signature to be placed on the same. Mark Mathes has claimed in the past that . . . Rodriguez authorized him to apply for and sign off on the loan with MidFirst Bank. []Rodriguez denies this." Stipulation Regarding Note and Guaranty Plaintiff Ex. 38, ¶ B. The Court views the totality of the facts and circumstances as a classic case of false pretenses, justifying application of Section 523(a)(2)(A) to except MidFirst's claim from discharge.

JURISDICTION

The Court has jurisdiction to hear the Complaint pursuant to 28 U.S.C. § 1334(b), and venue is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(I). Additionally, the parties consented to this Court's entry of final orders pursuant to Federal Rules of Bankruptcy Procedure 7008 and 7012.

BURDEN OF PROOF

Exceptions to discharge under Section 523(a)(2)(A) must be narrowly construed with doubt being resolved in the debtor's favor. Bellco First Fed. Credit Union v. Kaspar (In re Kaspar), 125 F.3d 1358, 1361 (10^th Cir. 1997). The creditor seeking to except a debt from discharge bears the burden of proving each element of its claim by a preponderance of the evidence. Grogan v Garner, 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).

FINDINGS OF FACT

The findings of fact are based on the testimony of defendant/debtor Raul Manuel Rodriguez, Jr. ("Rodriguez"), Mark Mathes ("Mathes") Melissa Hickey, a business relationship manager with MidFirst ("Hickey"), and Susan Simper, a senior vice president and Director of Business Express for MidFirst ("Simper"), the Stipulations contained on pages 2 and 3 of the Pretrial Order [Doc. 28], filed on April 26 2021 (the "Stipulations"), and the exhibits offered by MidFirst and Rodriguez including the additional Stipulation Regarding Note and Guarantee [Plaintiff Ex. 38].

Rodriguez, Mathes, and KRR

1. Rodriguez and Mathes are old friends (dating back to 2001) who occasionally worked together in the past on home construction projects. Stipulation 6. At various times, either Rodriguez or Mathes would essentially front the cost of a construction project by obtaining a loan for each other, which would later be paid off through a refinance. Rodriguez Testimony, Transcript, pp. 16-18, 37 (lines 14-20); Mathes Testimony, Transcript p. 94 (lines 2-11). This unique relationship is at the core of MidFirst's claim.

2. K&R Renovations, L.L.C. ("KRR") is an Oklahoma limited liability company organized by Rodriguez in 2007 and was in the construction business. Rodriguez is the 100% owner of KRR. Stipulation 5.

3. KRR had a bank account at BancFirst, opened when KRR was formed. Rodriguez Testimony, Transcript, p. 23 (lines 16-20).

4. Mathes owned Mark Mathes Construction, Inc. ("Mathes Construction"), which was also in the construction business. Mathes Testimony, Transcript, p. 81 (lines 13-22). Mathes Construction is no longer in operation and is "inactive" with the Oklahoma Secretary of State. Mathes Testimony, Transcript, p. 84, (lines 8-13).

Mathes' Operating under KRR Name

5. In 2016, Mathes suffered financial setbacks, having been served with a number of lawsuits against himself and Mathes Construction. Rodriguez Testimony, Transcript, p. 27 (lines 4-19); Mathes Testimony, Transcript, pp. 85-86. Faced with the possibility judgment creditors could execute upon his income and property, Mathes asked Rodriguez if he could operate his construction business under the name of KRR. Rodriguez Testimony, Transcript, p. 29 (lines 3-10).

6. Mathes also asked Rodriguez to open a bank account with MidFirst so he could conduct business under the name of KRR, the limited liability company owned solely by Rodriguez. Mathes Testimony, Transcript, pp. 86-88; Stipulation 7. Specifically, by operating under the KRR name, Mathes sought to protect construction loan proceeds from garnishment by his creditors. Rodriguez Testimony, Transcript, p. 27 (lines 4-10).

7. Rodriguez and Mathes would keep separate books and prepare and file tax returns separately for their separate construction businesses under the KRR name. Rodriguez Testimony, Transcript, pp. 28-30.

8. Rodriguez would operate out of the KRR bank account at BancFirst, and Mathes would operate his construction business out of a bank account at MidFirst in KRR's name. Rodriguez Testimony, Transcript, p. 29 (lines 3-16).

9. In May 2016, Rodriguez and Mathes went in person, but separately, to the MidFirst branch at 2101 SW 104^th in Oklahoma City to open a bank account for KRR. Rodriguez Testimony, Transcript, p. 34 (lines 6-25).

10. Rodriguez and Mathes opened a MidFirst account in the name of KRR, specifically MidFirst Account 3401017632 (the "Account"), to enable Mathes to operate separately from Rodriguez under the KRR name. Stipulation 8; Plaintiff Ex. 1.

11. The signature card for the Account (the "Account Signature Card") identifies Mathes as "manager" and Rodriguez as a "member" of KRR. Stipulation 8; Plaintiff Ex. 1. The signature card identifies 7900 SW 98^th, Oklahoma City, Oklahoma, as KRR's address (which was Mathes' then-physical address), Mathes' address as 9701 Olde Tuscany Rd, Oklahoma City, Oklahoma, Rodriguez's address as 3504 SW 127^th Street, Oklahoma City, Oklahoma, and Rodriguez's social security number, phone number, and date of birth. Plaintiff Ex. 1; Rodriguez Testimony, Transcript, pp. 67-69. The KRR address was not the actual address for KRR. Rodriguez Testimony, Transcript, p. 67 (lines 21-25). Rodriguez gave MidFirst his social security number, phone number, and date of birth. Rodriguez Testimony, Transcript, p. 69 (lines 13-16).

12. MidFirst obtained a copy of Rodriguez's Oklahoma Driver's License when the Account was opened (the "First Driver's License"). Rodriguez Testimony, Transcript, pp. 69-70; Defendant Ex. E. The First Driver's License was issued on July 13, 2012, and expired on May 31, 2016. Defendant Ex. E.

13. The Account Signature Card was personally signed by Rodriguez on May 18, 2016, and by Mathes on May 19, 2016. Rodriguez Testimony, Transcript, p. 69 (lines 6-12); Mathes Testimony, Transcript, p. 89 (lines 6-25); Plaintiff Ex. 1.

14. A Resolution of Limited Liability Company for KRR, initialed, signed, and executed by Rodriguez and signed and initialed by Mathes (the "Resolution"), was delivered to MidFirst providing "[a]ll of the members of [KRR], validly organized and operating as required by law, certify to [MidFirst] that the following is a true and complete copy of a resolution duly adopted at a meeting of . . . all of the members of [KRR]." Mathes Testimony, Transcript, pp. 90-91; Plaintiff Ex. 2.

15. The Resolution provides that Rodriguez is a Member and Mathes is Manager of KRR and, as such, are authorized signatures on the Account. Plaintiff Ex. 2, pp. 3-4.

16. However, Mathes was never the manager of KRR; only Rodriguez was the manager of KRR. Rodriguez Testimony, Transcript, pp. 35-36; Mathes Testimony, Transcript, pp. 84-85. Mathes was only listed as manager of KRR on the Account Signature Card and Resolution in order to set up the Account.

17. Rodriguez and Mathes set up the Account solely for Mathes to run his construction business through; Rodriguez did not want to run any activity through the Account. Rodriguez Testimony, Transcript, pp. 35-36. Nevertheless, Rodriguez had check signing privileges on the Account. Simper Testimony, Transcript, p. 170 (lines 13-16).

18. All of the information regarding KRR obtained through the process of opening the Account was uploaded to MidFirst's computer system. Hickey Testimony, Transcript, pp. 129 (lines 17-25) and 130 (lines 1-12).

KRR Financial Woes

19. KRR began having financial problems in January 2019. Rodriguez Testimony, Transcript, p. 26 (lines 2-16) and p. 38. It was embroiled in litigation commenced in 2018 and was incurring legal fees and expenses defending the litigation. Rodriguez Testimony, Transcript, pp. 38-40.

20. Eventually, Rodriguez decided to cease defending the KRR litigation and had a conversation with counsel about filing bankruptcy in March or April 2019. Rodriguez Testimony, Transcript, p. 40, lines 8-20.

21. Rodriguez reached out to his bankruptcy counsel, Jerry Brown, again in June 2019, about filing bankruptcy and began the process of pulling the information together for his personal bankruptcy filing. Rodriguez Testimony, Transcript, pp. 40-41.

22. Rodriguez communicated his bankruptcy plans to Mathes. Mathes was concerned Rodriguez's bankruptcy would result in a closing of the Account and impact his ability to complete construction projects. Rodriguez Testimony, Transcript, pp. 41-42

The Loan

23. Ignorant of the foregoing facts regarding KRR's financial woes, on September 25, 2019, Hickey contacted Mathes, as manager of KRR based on the Account records, to discuss the possibility of KRR obtaining an SBA guaranteed loan from MidFirst (the "Loan"). Stipulation 9; Hickey Testimony, Transcript pp. 129-130. Only existing MidFirst customers meeting set criteria were eligible to apply for the Loan. Hickey Testimony,...