Appeal from the United States Bankruptcy Court for the Western District of Washington Honorable Brian D. Lynch, Bankruptcy Judge, Presiding Bk. No. 10-47408 Adv. No. 10-04412
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on March 23, 2012, at Seattle, Washington
22 Before: KIRSCHER, JURY, and HOLLOWELL, Bankruptcy Judges.
27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th 28 Cir. BAP Rule 8013-1.
1 Appellant, Carson Taylor ("Taylor"), appeals a judgment from 2 the bankruptcy court determining that the debt owed to him by Eric 3 G. Carlson ("Debtor") was dischargeable. We AFFIRM.
4 I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
5 A. Events leading up to the nondischargeability action.
6 The following facts are largely undisputed. Taylor moved to 7 Centralia, Washington in September 2007. At that time, he was 8 employed as a funeral director of a mortuary operated by Daniel 9 LaPlante ("LaPlante"). Upon Taylor's arrival to Centralia, 10 LaPlante made arrangements for Taylor to rent a house from Dolores 11 McMurphy ("McMurphy"), a local elderly woman known to be someone 12 of wealth. McMurphy was in her early 80's at the time Taylor 13 began renting her house in Centralia; Taylor was approximately 36. 14 During this time, McMurphy was living alone in another house in a 15 different city.
16 LaPlante introduced Taylor to the Debtor in late 2007 or 17 early 2008, and the two men became friends. At that time, the 18 Debtor had lived in the Centralia area for about 15 years. In or 19 about February 2008, McMurphy decided to sell her home and move 20 into the rental house with Taylor. Her home sold for $285,000. 21 The Debtor helped McMurphy and Taylor with the move. Around this 22 same time, Taylor and McMurphy went to see McMurphy's attorney, 23 Paul Dugaw ("Dugaw"), about an alleged theft by her prior 24 caregivers.
25 In June 2008, McMurphy transferred her bank accounts into 26 joint accounts with Taylor. Later that same month, McMurphy 27 signed a durable power of attorney ("POA") naming Taylor as her 28 attorney in fact. The POA was not prepared by Dugaw, McMurphy's -2- 1 known attorney; rather, it was prepared by attorney Brian Kelly, 2 who apparently had no other involvement with McMurphy or her case 3 against the prior caregivers. Also in June 2008, McMurphy 4 transferred title of all of her real property holdings by 5 quitclaim deed out of her name and into joint tenancy with right 6 of survivorship with Taylor.
7 In June/July 2008, Taylor and the Debtor began discussing the 8 possibility of a loan for use in Debtor's business. In 2008, the 9 Debtor owned and operated two entities, Archimedes Group 10 International, Inc. ("AGI") and College Enrollment Services 11 ("CES"), which were in the business of placing foreign students in 12 colleges and universities in the United States. The Debtor had 13 been in the foreign student placement business for over 20 years, 14 15 of which he was in business for himself. After closing his 15 previous business Academic Exchange of America in 2007, the Debtor 16 went forward with his new business plan with AGI and CES, in which 17 he worked with colleges in the U.S., particularly community 18 colleges to place foreign students under a visa program sponsored 19 by the State Department. In his early marketing efforts, the 20 Debtor was able to convince 12 community colleges to pay him 21 $10,000 each to begin recruiting foreign students to place with 22 their college, and to pay him additional funds for those students 23 he placed.
24 In addition to operating AGI and CES, the Debtor was (and 25 still is) managing a local medical office for a physician named 26 Dr. Floyd Smith ("Dr. Smith"). The Debtor's job duties include 27 procurement, staff management, payables, and handling other 28 office-related matters. Coincidentally, Dr. Smith is McMurphy's 1 physician.
2 On July 24, 2008, Taylor wrote the Debtor a check for 3 $300,000 from the McMurphy/Taylor joint checking account. Three 4 days later on July 27, the Debtor signed a promissory note he 5 prepared, payable to Taylor and effective as of July 24, 2008. 6 The loan was unsecured, provided 6% interest, called for monthly 7 payments of the accruing interest on the first day of each month 8 starting August 1, 2008, and payment of the principal and any 9 remaining interest was due in one year on August 1, 2009. It is 10 undisputed that the funds came from McMurphy. It is also 11 undisputed McMurphy was earning only 2% interest on the funds in a 12 certificate of deposit and that the Debtor offered to pay a 13 significantly higher interest rate of 6%. Coincidentally, the 14 $300,000 loan was approximately the same amount McMurphy realized 15 in proceeds from selling her home in February 2008.
16 The Debtor made payments to Taylor on the loan from August 17 2008 to January 2009. Although the check for the loan was written 18 from the joint McMurphy/Taylor account, Taylor deposited each of 19 the monthly interest payments from the Debtor into an account in 20 Taylor's name only. After receiving the loan, the Debtor traveled 21 extensively worldwide trying to recruit students for his new 22 venture. Despite his efforts, the business did not succeed, which 23 he attributed to the meltdown of the world economy. 24 The Debtor sent a last check and letter to Taylor in August 25 2009 asking Taylor to extend the maturity date of the loan. 26 Taylor did not agree to the extension and responded by filing a 27 complaint in his own name against the Debtor in state court on 28 August 20, 2009, for breach of contract. In his deposition taken during the state court action, Taylor was unable to answer any questions about his relationship with McMurphy because an investigation by Adult Protective Services ("APS") was pending against him. When asked about his friendship with the Debtor, Taylor testified that they ceased being friends in September 2008, just two months after the loan:
Q: And what happened in September?
A: We were in a relationship. I found he was hooking up with people on online porn, and I didn't want somebody like that in my life.
Taylor Dep. (Mar. 24, 2010) at 34:8-17.
In May 2010, Taylor obtained a summary judgment in the state court action for approximately $330,000, which included the principal balance on the note, interest, attorney's fees and costs. The Debtor filed a chapter 7*fn2 bankruptcy on September 9, 2010.
B. The nondischargeability action.
In December 2010, Taylor filed a nondischargeability complaint seeking to except his debt from discharge under § 523(a)(2). A one-day trial was set for July 20, 2011.
On July 11, 2011, Taylor's new counsel, retained just six weeks prior, filed a motion to continue the trial date, which was heard expeditiously on July 13, 2011. Taylor contended a continuance was warranted because the Debtor had failed to respond to certain discovery requests made in April 2011 by Taylor's 1 former counsel for tax returns, bank statements, and other 2 financial documents. The Debtor opposed the continuance. At oral 3 argument, Taylor explained he was attempting to obtain a copy of 4 the financial statement he claimed the Debtor showed him prior to 5 making the loan, which supported his claim under § 523(a)(2)(B). 6 Debtor's counsel agreed to turn over the requested financial 7 documents by the end of the day.
8 The court orally denied the motion to continue. It reasoned 9 that Taylor's former counsel was complicit with the production 10 problem since he failed to ever file a motion to compel and, in 11 any event, the Debtor was making a considerable effort to try to 12 respond. The court noted that if Taylor believed the documents to 13 be non-responsive, he could return and ask for further disclosure. 14 No order was entered on the motion to continue.
15 Also on July 13, 2011, the Debtor filed a motion in limine 16 seeking to exclude the following evidence at trial: (1) either 17 Taylor's or the Debtor's sexual preference or orientation; 18 (2) Taylor's transgender surgical procedures; (3) Taylor's and the 19 Debtor's one-time sexual relationship; (4) statements by the state 20 court judge not part of the record; (5) the Wells Fargo adversary 21 complaint and the Debtor's settlement with same; (6) Taylor's 22 statements about the contents of the financial statement he 23 claimed the Debtor showed him prior to the loan; (7) documents or 24 witness testimony not disclosed; and (8) alleged oral statements 25 the Debtor made to Taylor about his financial affairs.
26 On July 19, 2011, the Debtor filed an amended motion in 27 limine seeking to exclude only two things - Taylor's statements 28 about the contents of the financial statement he claimed the -6- 1 Debtor showed him prior to the loan, and the alleged oral 2 statements the Debtor made to Taylor about his financial affairs. 3 Taylor opposed the amended motion in limine. On the morning 4 of trial, the parties submitted a stipulated order agreeing to 5 exclude the following: (1) either parties' sexual preference or 6 orientation; (2) either parties' physical or mental health, or any 7 medical, surgical, or mental health related treatments or 8 procedures; (3) either parties' sexual relationship or 9 relationships with others; ...