October 19, 2018

Bankruptcy Court: Plaintiffs Justifiably Relied upon False Statements of Defendants when Entering into Stipulation

The U.S. Bankruptcy Court for the District of Colorado issued its opinion in In re Reeves (Rayner v. Reeves) on Tuesday, June 21, 2011.

11 U.S.C. Section 523(a)(2)(A).

Plaintiffs settled a lawsuit in state court which, as part of the settlement, the Defendant assured the Plaintiff that: (a) he did not have total assets whose value exceeded the exemption statutes allowance; (b) he did not transfer assets outside the ordinary course of business; and (c) he did not transfer real estate to family. As part of the settlement, the Defendant agreed that if he was not telling the truth about these assertions and representations a judgment would enter against him for $100,000. After the Defendant failed to pay on the settlement, the state court concluded, after a trial on the merits, that Defendant was not telling the truth in entering into the stipulation and entered a judgment against him in the amount of $100,000.

The Plaintiffs sought summary judgment in this dischargeability action seeking a determination that the state court’s ruling granting a judgment based on the stipulation in the amount of $100,000 should be granted issue preclusive effect. Defendant argued that because his statements were so obviously false there could have never been justifiable reliance.

The Bankruptcy Court concluded that the stipulation was entered into only after careful requests for assurance that Defendant was telling the truth about his situation. The stipulation was crafted after deliberation and negotiation. The stipulation was crafted with provisions—or sanctions—in the event the Defendant was lying. Because of these safeguards, the Court concluded that the Plaintiffs did, indeed, justifiably rely on the false statements of the Defendant.

Other published Bankruptcy Court opinions can be found here. Unpublished opinions can be found here.

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