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Johnson v. Riebesell (In re Riebesell), 586 F.3d 782 (10th Cir. 2009) (O'Brien, Porfilio, Tymkovich) (Loans by attorney to client in violation of professional responsibility rules were nondischargeable under § 523(a)(2)(A). "[F]ailure to make the disclosures required by [Colorado Rules of Professional Responsibility] . . . constitutes a 'false representation' within the meaning of § 523(a)(2)(A). . . . The intent to deceive 'may be inferred from the totality of the circumstances.' . . . Johnson's trust in Riebesell, his attorney, caused him, like so many others, to fall for Riebesell's scheme of borrowing money from clients. . . . The appropriate standard is not 'reasonableness' in the sense of whether an objectively reasonable person would have relied upon the debtor's false representations. Rather, the inquiry is whether the actual creditor's reliance was 'justifiable' from a subjective standpoint. In determining whether a creditor's reliance was justifiable, a court should therefore examine 'the qualities and characteristics of the particular plaintiff, and the circumstances of the particular case, rather than [applying] a community standard of conduct to all cases.' Even under the 'justifiable' test, however, the plaintiff must 'use his senses' and at least make 'a cursory examination or investigation' of the facts of the transaction before entering into it. Moreover, this test 'does not leave [objective] reasonableness irrelevant, for the greater the distance between the reliance claimed and the limits of the [objectively] reasonable, the greater the doubt about reliance in fact.' '[R]easonableness goes to the probability of actual reliance.' [Debtor argues that Johnson] could not have actually and justifiably relied on the attorney-client relationship as a basis for lending him money, noting Johnson 'is an astute businessman who was well-educated. He was interested in making loans as an investment. He had access to other attorneys.' . . . [He] knew of [debtor's] declining financial condition, but kept loaning him money anyway. The bankruptcy court was not insensitive to these considerations. By the time Johnson lent Riebesell the final $45,000, the bankruptcy court decided his reliance on Riebesell as his attorney was no longer justifiable, saying Johnson 'was not a naif, but was, instead a competent business man' who was well aware that Riebesell's declining financial condition made it unlikely that he would be repaid. But it refused to extend the same reasoning to the initial loan, noting Johnson's testimony that he was a long-standing friend and client of Riebesell's, and trusted him. It also noted the other clients of Mr. Riebesell's who were similarly defrauded. In sum, the bankruptcy court's conclusion‹Johnson justifiably relied on Riebesell's false representations‹was not clearly erroneous.").
Frazier v. Schafer (In re Schafer), 407 B.R. 443 (B.A.P. 10th Cir. 2009) (Table) (Cornish, McFeeley, Michael) (For purposes of the intent element of § 523(a)(2)(A), debtor has "responsibility to bring forth information that would justify his unreasonable but honest belief" that representations were true. Debtor represented that his brokerage account balance would be sufficient to repay a $52,000 debt within two weeks. Bankruptcy court found that it was "unrealistic and reckless" for debtor to expect brokerage account to increase from $10,000 to more than $52,000 in such a short period of time. Debtor testified at trial that his account actually reached $80,000 but bankruptcy court did not believe that testimony.).
©2010 Keith M. Lundin
