Last year, Vincent Howard and our Fontana consumer bankruptcy attorneys wrote about a Bankruptcy Appellate Panel decision involving a couple whose small business took out a business loan. Unbeknownst to Jeffrey Scott Unterreiner and Lisa Marie Unterreiner, the francisor for their Dairy Queen franchises guaranteed their loan. When the Unterreiners couldn't pay back the loan, the owner of the franchisor, the Samuel Temperator Revocable Trust, was obligated on the loan. When the couple later filed for bankruptcy, the Trust filed an adversary proceeding seeking to have the Unterreiners' debt declared non-dischargeable because of fraud. The bankruptcy court sided with the Trust, but the Eighth U.S. Circuit Court of Appeals BAP reversed that decision, and the Eighth Circuit itself upheld that decision in Samuel J. Temperato Trust v. Unterreiner.
Jeffrey Unterreiner co-owned King William Management Company, which operated three Dairy Queens in Missouri. The franchisor for the stores was Dairy Queen of Greater St. Louis (DQSTL), and the Trust owned DQSTL. In 2005, King William needed a loan to continue operating, so a DQSTL affiliate who was also a trustee of the Trust arranged a loan. The Unterreiners signed personal guarantees of the loan (as did their partners in King William) and a commercial security agreement. They did not know, however, that the Trust had a preexisting agreement with the bank that guaranteed all obligations of DQSTL to that bank. Indeed, the opinion notes that they didn't know the Trust existed or owned DQSTL until the adversary proceeding was filed. About a year after the loan was made, Jeffrey Unterreiner informed the bank that the business property securing the loan was not all owned by King William; he had signed papers to this effect, but said he didn't read them.
In 2007, King William defaulted on the loan and the bank pursued the Unterreiners for the money, eventually settling for $20,000. The bank then asked the Trust to repay the rest. When the Unterreiners filed for bankruptcy, the Trust filed a proceeding seeking to have the debt declared non-dischargeable due to the fraud. It said that when it guaranteed the loan, it reasonably relied on the misrepresentation made by the Unterreiners that it owned the business property serving as collateral. The bankruptcy court agreed and declared the debt non-dischargeable. However, the BAP reversed on appeal. It found that because the Trust made the blanket guarantee before the loan to the Unterreiners was made, it could not possibly have relied on any misrepresentations. Thus, it did not meet the statutory requirements.
The Trust appealed to the Eighth Circuit, but the appeals court affirmed the panel's finding. The relevant statute requires the Trust to establish that the Unterreiners got something of value from the Trust by making a materially false statement that the Trust relied on. The Eighth found that the Trust could not establish two elements of that test: the Trust's reliance on their statement or that they got "money, property, services or... credit" from the Trust. The Unterreiners got a loan guarantee from DQSTL, the court said, and while a loan guarantee may or may not be credit, DQSTL is not a party to this case. Furthermore, the court said, the Trust did not rely on the Unterreiners' statement when it made the blanket guarantee of all DQSTL obligations, because the guarantee preceded the Unterreiners' loan by four years. Thus, it upheld the BAP and directed the bankruptcy court to find for the Unterreiners.
Vincent Howard and our Westminster personal bankruptcy attorneys are pleased to see this case upheld in favor of the debtors. Bankruptcy exists in part because bad things happen--businesses fail, for example, and business owners who put personal credit and money at risk can be set back considerably by those failures. Bankruptcy allows such people to liquidate their assets or work hard at a payment plan and eventually get a fresh start. But when a creditor comes out of seemingly nowhere--which is how this couple must have perceived the situation when the Trust and its blanket guarantee appeared--it denies the debtors that fresh start. In this case, the Unterreiners had paid $20,000 and been released from the rest of their obligation, only to get a new bill for many times that amount. At Howard Law, P.C., our Norco individual bankruptcy lawyers aggressively defend clients subjected to this kind of collection attempt that's unsupported by law.
If you've been hit with a huge debt you can't reasonably repay and you'd like to explore bankruptcy as an option, you should call Vincent Howard and the team at Howard Law for a consultation. You can send us a message online or call toll-free at 1-800-872-5925.