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In Re: William Spencer Reingold and v. Sharon Shaffer

March 19, 2013


Appeal from the United States Bankruptcy Court for the Central District of California Honorable Charles E. Rendlen, III, Bankruptcy Judge, Presiding Bankr. No. 10-24329-RN Adv. Proc. No. 10-01903-RN



Argued and Submitted on February 22, 2013, at Pasadena, California Filed - March 19, 2013

Before: PAPPAS, DUNN and KIRSCHER, Bankruptcy Judges.

Chapter 7*fn2 debtor William Spencer Reingold ("Reingold") appeals from a decision of the bankruptcy court determining that $76,000 of a total debt of $126,000 he owed to creditor Sharon Shaffer ("Shaffer") was excepted from discharge under § 523(a)(2)(A). Shaffer cross-appeals, arguing that the total debt should be excepted from discharge under § 523(a)(2)(A). We AFFIRM.


Reingold is a contractor and real estate developer. In 2008, he hoped to purchase and rehabilitate a single-family residence in Santa Barbara that had been damaged by fire (the "Property"). At some point not clear in the record, but before having contact with or receiving any funds from Shaffer, Reingold withdrew money from his children's IRA accounts and made a deposit of $32,000 into escrow for the purchase of the Property.

Reingold did not have sufficient funds from his available resources to complete the acquisition of and work on the Property, nor to meet his other business expenses. Reingold enlisted Shaffer's financial aid.

On October 24, 2011, Shaffer gave Reingold a check for $50,000. Reingold cashed it and the check cleared the bank on October 28, 2011. Reingold asserts that the money given to him by Shaffer was intended to be a general purpose loan to support his business. Shaffer disputes this, and contends that the loan was intended solely for Reingold's use to acquire and improve the Property.

3 On October 31, 2011, Reingold and Shaffer signed a Loan 4 Agreement and Promissory Note (the "Loan Agreement"), prepared by 5 Reingold, containing, in part, the following terms: 6 [SHAFFER] agrees to loan [REINGOLD] the sum of $126,000 dollars (Hereinafter, "the Loan Amount") to be used for 7 purchase and rehabilitation of [the Property].

FOR VALUE RECEIVED, [REINGOLD] promises to pay to the order 8 of [SHAFFER] the sum of $150,000 dollars within one year. . . . If the Loan Amount is not repaid within one 9 year interest thereafter will accrue at a rate of 16% annually on any unpaid principal or interest. Upon 10 acquisition of the [Property] [REINGOLD] grants [SHAFFER] an immediate secured interest in [the 11 PROPERTY] as a secondary lienholder. 12 On November 17, 2008, Shaffer gave Reingold a second check, 13 this one for $76,000. The check cleared the bank on November 25, 14 2011.

15 On April 20, 2009, Reingold canceled the escrow on the 16 Property and the $32,000 deposit was refunded to him. 17 On July 21, 2009, Shaffer sued Reingold in state court for 18 breach of contract and to collect on the promissory note. Shaffer 19 conceded in the bankruptcy court that she did not assert a cause 20 of action for fraud against Reingold in state court. The state 21 court granted a default judgment against Reingold in favor of 22 Shaffer on November 4, 2009, for $126,000 in damages, $12,047.00 23 interest, $43,069.00 attorney's fees, and $2,595.00 costs, for a 24 total of $183,711.00.

25 Reingold and his wife filed a petition under chapter 7 on 26 April 14, 2010. 27 Shaffer filed an adversary complaint against Reingold on 28 May 24, 2010, and a First Amended Complaint ("FAC") on August 24, 2010. In the FAC, Shaffer sought a determination that the debt owed by Reingold*fn3 to her was excepted from discharge in bankruptcy under § 523(a)(2)(A). Specifically, Shaffer alleged that the representations made to her by Reingold in the Loan Agreement -- that the loan proceeds would be used for the purchase and rehabilitation of the Property -- were false and fraudulent at the time they were made; that Reingold was aware of that falsity; that Reingold made those representations with the intent to obtain the loan and to defraud Shaffer; and that Shaffer relied on those representations and was proximately damaged by them. Reingold filed an answer on September 21, 2010, admitting that he signed the promissory note and Loan Agreement, but generally denying the remaining allegations. Shaffer submitted a trial brief to the bankruptcy court in which she argued that: (1) Reingold obtained the loan proceeds of $126,000 based on false statements, which were compounded by Reingold's concealment of material facts, such as his financial inability to acquire the Property and his intention to use the funds for purposes other than the Project; (2) Reingold never intended to use the loan proceeds for the purpose he represented to Shaffer; (3) Reingold did not use the proceeds for their intended purpose; (4) Shaffer was victimized by Reingold.

Reingold's trial brief acknowledged that he had defaulted on his contractual obligations under the Loan Agreement, but denied that he committed any fraud. Generally, Reingold asserted that he 1 did not make any material misrepresentations, with knowledge of 2 any falsity, upon which Shaffer relied and sustained injury.

3 The bankruptcy court conducted a trial on November 28, 2011. 4 Shaffer and Reingold were represented by counsel. They were the 5 only two witnesses, and both were subject to cross-examination. 6 At the close of testimony, the court took the issues under 7 advisement.

8 On January 9, 2012, the bankruptcy court announced its oral 9 decision on the record. It found that the debt represented by the 10 $76,000 check given by Shaffer to Reingold was excepted from 11 discharge under § 523(a)(2)(A) because those loan proceeds were 12 obtained by false pretenses and used for purposes other than as 13 specifically represented in the Loan Agreement.

14 On the other hand, the bankruptcy court ruled that the debt 15 represented by the $50,000 check could be discharged. The court 16 found that the money represented a general purpose loan from 17 Shaffer to Reingold for development of the Property. The court 18 would later in its findings observe that a general purpose loan is 19 that "for which the borrower could use the loan for any purpose."

20 The bankruptcy court entered a judgment in favor of Shaffer 21 and against Reingold on February 16, 2012, for $76,000, which it 22 declared to be excepted from discharge under § 523(a)(2)(A).

23 Reingold timely appealed the judgment. Shaffer filed a timely 24 cross-appeal.


The bankruptcy court had jurisdiction under 28 U.S.C. ยงยง 1334 27 and 157(b)(2)(I). We have ...

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