Date of Decision:
January 31, 2013
Whether creditor-feed supplier's claim against the debtor-cattle feeder should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(2)(A), (a)(2)(B), or (a)(4) where the feed supplier held a pre-petition default judgment against the debtor for fraud?
The feed supplier's claim was not excepted from discharge. While the state court default judgment established some elements necessary for a claim to be declared nondischargeable under either § 523(a)(2)(A) or (a)(2)(B), the default judgment did not establish the element of "justifiable reliance" for (a)(2)(A) or "reasonable reliance" for (a)(2)(B). As to "justifiable reliance" under (a)(2)(A), the feed supplier did not provide sufficient evidence for the Court to determine the feed supplier's particular qualities and characteristics that rendered his reliance on the debtor's silence regarding his ability to pay for the feed justifiable. There were also red flags surrounding some of the feed deals that should have prompted the feed supplier to further investigate the proposed transactions. Because of these red flags, the feed supplier similarly could not establish the higher "reasonable reliance" standard of § 523(a)(2)(B). The feed supplier was also unable to identify a false financial statement on which he relied pursuant to § 523(a)(2)(B). As to his request for relief under § 523(a)(4), the feed supplier's contention that the debtor's taking of the feed without paying for it constituted larceny was unsuccessful.