Postovit v. Bolling (In re Bolling)

600 B.R. 838

IN RE: Holly Diane BOLLING, SSN: xxx-xx-xxxx Debtor.

Steve Postovit, Plaintiff,

v.Holly Diane Bolling, Defendant.

Case No. 17-17174-JGR

Adv. Pro. No. 17-01501-JGR

United States Bankruptcy Court, D. Colorado.

Signed May 29, 2019

Wesley Hassler, Pueblo, CO, for Defendant.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

Joseph G. Rosania, Jr., United States Bankruptcy Judge

John D. Rockefeller once said: "A friendship founded on business is better than a business founded on friendship."

At issue in this proceeding is whether a debt that stems from two loan transactions is excepted from discharge under 11 U.S.C. § 523(a)(2)(A). The Court has jurisdiction over this core matter pursuant to 28 U.S.C. § 157(b)(2)(I) and 28 U.S.C. § 1334.

The Court, having considered the evidence in the form of testimony and exhibits submitted at trial, makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

FINDINGS OF FACT

Steve Postovit ("Mr. Postovit") is a small business owner who previously worked in the financial services industry and has completed two years of college. Since 2009, Mr. Postovit has owned and operated a tire shop in Kalispell, Montana. Prior to relocating to Kalispell in 2004, he owned and operated a restoration business that remediated damage to commercial and residential properties caused by fire, flood, and mold. Between 2004-2008, Mr. Postovit received training to be an investment advisor at Edward Jones and worked as a licensed investment advisor at Merrill Lynch. His duties at Merrill Lynch included facilitating retirement plans, mutual funds, and other investments. Mr. Postovit also held investments of his own through Edward Jones, which included stocks, bonds, and mutual funds.

Holly Diane Bolling ("Ms. Bolling") relocated to Kalispell, Montana in 1994 and resided there until 2008. Ms. Bolling has been employed as a flight attendant for approximately twenty-nine years. She also has an architecture degree and previously worked for an architecture firm. In addition to working as a flight attendant, Ms. Bolling earned a living between 2004-2008 by "flipping" real estate. Ms. Bolling "flipped" approximately five properties by herself and another fifteen properties with her then-husband, Marc Bolling ("Mr. Bolling"), before they divorced in 2009. Mr. Bolling owned a construction company and earned a living by building homes. When she "flipped" properties with Mr. Bolling, Ms. Bolling designed and drafted construction drawings for the homes that Mr. Bolling built. Ms. Bolling also purchased properties, took out loans, signed promissory notes, and executed trust indentures in connection with her and Mr. Bolling's "flips."¹

Between 2004-2008, Mr. Postovit and Ms. Bolling lived approximately fifteen minutes apart from one another with their respective families. They were two of about thirty families who lived near and around Ashley Lake year-round. Ms. Bolling owned a home and two adjacent parcels of land in the subdivision Karrow Ashley Estates. Mr. Postovit's home is located in the subdivision Emerald Point.

Mr. Postovit and Ms. Bolling met in late-2004 at a community social engagement that they attended with their families. Thereafter, they socialized together at dinners and parties at one another's homes and the homes of mutual friends. Their daughters also carpooled to school together, played together, and had periodic sleepovers.

At trial, Mr. Postovit and his wife, Tara Postovit ("Mrs. Postovit"), testified that they were "very close" friends with the Bollings (Trial Tr. 22:11-23; 63:23-64:11). Ms. Bolling disputed the closeness of their relationship and testified that there were always other people present when they socialized with the Postovits (Trial Tr. 94:20-95:13). However, Mr. Postovit and Mrs. Postovit both independently testified that they once flew in Mr. Bolling's personal plane to have dinner out-of-state (Trial Tr. 22:5-6; 63:20-21), and Mr. Postovit also testified that he flew with Mr. Bolling for an out-of-state hunting trip (Trial Tr. 22:6-8). Ms. Bolling testified that she did not recall taking any trips with the Postovits in Mr. Bolling's plane because Mr. Bolling "didn't take [Ms. Bolling] on his plane" (Trial Tr. 95:14-18).

Through their social relationship, Mr. Postovit learned that the Bollings "flipped" real estate for a living and appeared to be successful at doing so. Specifically, Mr. Postovit knew that the Bollings had designed and built homes for at least four mutual friends, and that one such friend had profited by investing in one of the Bollings' "flips." Mr. Postovit was also aware that the Bollings had designed and built properties outside of Kalispell and outside of Montana.²

I. The Loan Transactions

In the spring of 2007, the Postovits and Bollings discussed the prospect of Mr. Postovit investing in one or more of the Bollings' "flips." At that time, Mr. Postovit had no real estate investment experience and had only purchased two homes, subject to secured mortgages, for himself and his family. One night while the Postovits were at the Bollings' home for dinner, Mr. Bolling and Mr. Postovit walked together to see certain lots north of the Bollings' home that Mr. Bolling represented he and Ms. Bolling intended to "flip." Mr. Postovit agreed that he would make a loan to invest in "flipping" one of the lots, and, depending on the outcome of the first "flip," Mr. Postovit might make another loan to invest in "flipping" the second lot.

Ultimately, Mr. Postovit made two loans to invest in "flipping" both lots. Mr. Postovit took a second mortgage out on his home to fund the loans. The terms of the loans were negotiated by and between Mr. Postovit and Mr. Bolling. Ms. Bolling was not party to the negotiations. Ms. Bolling disputed that she had any knowledge of the business dealings between Mr. Postovit and Mr. Bolling outside of misinformation that she received from Mr. Bolling. The loans were documented by two promissory notes drafted by Mr. Bolling's attorney.³ It is undisputed that the lots Mr. Postovit believed he was investing in—those shown to him by Mr. Bolling—were not the lots that were referenced in either of the promissory notes. Rather, the promissory notes referenced the two lots adjacent to Ms. Bolling's home in Karrow Ashley Estates.

a. The April 13, 2007 Note

The first promissory note was executed on April 13, 2007, by Ms. Bolling in favor of Mr. Postovit for a $ 150,000 loan (Pl.'s Ex. 3; the "April 13 Note"). The April 13 Note reflects that the principal, together with 25% interest, is payable upon the sale of "Lot 4 of Karrow Ashley Estates, Kalispell, Flathead County, Montana" ("Lot 4 of Karrow Ashley Estates"). The April 13 Note also provides that it is secured by a trust indenture on real property located at Lot 4 of Karrow Ashley Estates. The April 13 Note bears Ms. Bolling's signature as "BORROWER," Mr. Postovit's signature as "LENDER," and is notarized by a notary public.

Both Mr. Postovit and Mrs. Postovit independently testified that the April 13 Note was executed at Wells Fargo bank, and that Ms. Bolling was present (Trial Tr. 28:22-29:4; 66:21-67:20). Mr. Postovit further testified that he witnessed Ms. Bolling sign the April 13 Note (Trial Tr. 28:24-29:1). Ms. Bolling testified that she did not recall meeting Mr. Postovit at Wells Fargo Bank (Trial Tr. 118:2-119:10) or signing the April 13 Note, but she conceded that where a document is notarized, a notary generally must confirm the signatory's identity and witness the signing of the document (Trial Tr. 96:18-97:7).

In connection with the April 13 Note, Mr. Postovit made out a check, dated April 13, 2007, to Investment Land Group in the amount of $ 150,000 (Pl.'s Ex. 2; the "April 13 Check"). The April 13 Check was endorsed by "Holly Bolling as VP Inv. Land Group LLC." Ms. Bolling testified that she was, in fact, the vice president of Investment Land Group, LLC (Trial Tr. 103:23-25). Investment Land Group, LLC's sole member was Global Investment Enterprises, LLC (Pl.'s Ex. 13), an entity through which the Bollings developed land (Trial Tr. 90:23-91:2), which was solely owned by Ms. Bolling (Trial Tr. 87:19-91:5). Ms. Bolling testified at a prior deposition that she believed she and Mr. Bolling had 50/50 ownership interests in Global Investment Enterprises, LLC (Trial Tr. 89:6-14). However, Ms. Bolling testified at trial that she subsequently learned Mr. Bolling put Global Investment Enterprises, LLC in her name without her knowledge (Trial Tr. 87:19-88:9).

Mr. Postovit testified that the April 13 Check was executed at Wells Fargo Bank immediately following the execution of the April 13 Note (Trial Tr. 32:4-24). Ms. Bolling testified that she "did pick up" the April 13 Check from Mr. Postovit and put it under Mr. Bolling's office door (Trial Tr. 99:17-18). Ms. Bolling also testified that the endorsement looked familiar and she "could have endorsed" the April 13 Check, but that she was not "sure" she had endorsed the April 13 Check (Trial Tr. 99:25-100:2; 103:16-19). Ms. Bolling testified that she received no benefit from the April 13 Check (Trial Tr. 156:8-19).

At the time the April 13 Note was executed, Ms. Bolling owned Lot 4 of Karrow Ashley Estates, which was one of the parcels of land adjacent to her home. At no time was a trust indenture executed in favor of Mr. Postovit with respect to Lot 4 of Karrow Ashley Estates. Mr. Postovit testified that he never requested documentation or other proof of the executed trust indenture for Lot 4 of Karrow Ashley Estates because "[the Bollings] were the experts in the real estate business," and he "gave them the money and trusted them that they would do what they said they were going to do" (Trial Tr. 35:2-23).

On the same day that the April 13 Note was executed, the Bollings executed a trust indenture for Lot 4 of Karrow Ashley Estates in favor of Park Side Federal Credit Union (Pl.'s Ex. 4; the "Park Side Trust Indenture"). The Park...