DMM Grp., Inc. v. Hanna (In re Hanna)
This text of 603 B.R. 571 (DMM Grp., Inc. v. Hanna (In re Hanna)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
Jeff Bohm, United States Bankruptcy Judge
I. INTRODUCTION
Danny Hanna ("the Debtor ") filed a Chapter 13 petition on January 23, 2017 ("the Petition Date ") [Main Case Doc. No. 1]. On May 9, 2017, DMM Group, Inc. ("DMM ") initiated the pending adversary proceeding against the Debtor [Adv. Doc. No. 1]. Prior to the Debtor's filing of his Chapter 13 petition, DMM extended a loan of $150,000.00 to the Debtor's 100%-owned company, a debt that the Debtor personally guaranteed. DMM requests this Court to enter a judgment for the amount of the unpaid loan, plus attorneys' fees and costs, as a nondischargeable debt for which the Debtor is liable under
*576The Court held a one-day trial in this adversary proceeding on May 29, 2019. The Court then took the matter under advisement. On July 1, 2019, this Court held a brief hearing to announce orally on the record that it had decided to grant the relief sought by DMM. The Court indicated that it would eventually issue written Findings of Fact and Conclusions of Law, together with a judgment, explaining its decision. However, the Court informed the parties that it would refrain from entering its written findings and conclusions, plus the judgment, until after DMM had proven up its reasonable attorneys' fees and costs. The Court instructed DMM's counsel to submit his fee bills to counsel for the Debtor by no later than noon on July 3, 2019, and also instructed the Debtor's counsel to file a certificate by no later than 5:00 p.m. on July 10, 2019 setting forth whether the Debtor objected to the amount of the fees and expenses requested by DMM. The Court further stated that if, and only if, the Debtor filed an objection would this Court hold a separate evidentiary hearing requiring DMM to prove up its reasonable attorneys' fees and expenses.
DMM's counsel did, in fact, timely submit his firm's fee bills, which reflect that the DMM's fees and expenses total $19,031.79. [Adv. Doc. No. 42]. The deadline of July 10, 2019 for the Debtor to file a certificate objecting to this amount has expired, and the Debtor has lodged no objection. Accordingly, the Court finds that the Debtor agrees that the amount of $19,031.79 is a reasonable amount for DMM to recover from the Debtor.2
Now that the issue of reasonable attorneys' fees and expenses has been determined, the Court proceeds to issue these written Findings of Fact and Conclusions of Law pursuant to Rule 7052 explaining why it has decided to grant the relief requested by DMM and enter a judgment declaring that $219,535.47, the outstanding amount owed under the loan documents (including unpaid principal, accrued unpaid interest, attorneys' fees and expenses) is a nondischargeable obligation owed by the Debtor. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as this Court deems appropriate or as may be requested by either of the parties.
II. FINDINGS OF FACT
1. The Debtor is a former principal of Blackwolf Security Group, LLC ("Blackwolf "). Blackwolf's headquarters was in the Woodlands, Texas, and it was in the security business-i.e. providing security to various corporations and organizations. [Tape Recording, May 29, 2019, Tr. at 10:17:24 - 10:17:35 a.m., 2:53:38 - 2:54:14 p.m.].
2. DMM is owned entirely by Dale Mohn ("Mohn "). [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m.]. Mohn is the sole decision-maker for DMM, whose business *577involves security consulting and making investments, which includes extending loans. [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m., 1:49:28 - 1:49:32 p.m., 2:20:22-2:20:46 p.m.].
3. Patrick Magill ("Magill ") is an accountant who has referred business to DMM in the past. [Tape Recording, May 29, 2019, Tr. at 1:49:25 - 1:49:42 p.m.].
4. Magill also provided accounting services to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:42 - 1:49:54 p.m.].
5. Magill suggested to Mohn that DMM might want to provide financing to Blackwolf, and a meeting was subsequently arranged. [Tape Recording, May 29, 2019, Tr. at 1:49:35 - 1:49:42 p.m.].
6. In early June of 2016, Mohn met with the Debtor, Magill, and Catherine Carriger ("Carriger "). [Tape Recording, May 29, 2019, Tr. at 1:48:46 - 1:49:03 p.m.]. The purpose of the meeting was to introduce the parties and to discuss a possible loan from DMM to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:03 - 1:49:42 p.m.]. At this meeting, Mohn met the Debtor and Carriger for the first time. The Debtor informed Mohn that Carriger was in the process of obtaining a security permit and setting up her own minority-owned company in Dallas-Blackwolf SG, LLC ("SG ")-to maximize the potential of securing a large contract with the U.S. Department of Labor. [Tape Recording, May 29, 2019, Tr. at 2:54:48 - 2:55:07 p.m.].
7. This meeting lasted approximately ninety minutes. [Tape Recording, May 29, 2019, Tr. at 1:52:03 - 1:52:08 p.m.]. The Debtor did much of the speaking and expressly represented to Mohn that Blackwolf was expanding its operations with a Dallas office and was planning to start a training business in Dallas. [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact Nos. 12b and 12g, page 7 of 13]. The Debtor further represented to Mohn that Blackwolf and SG needed a $150,000.00 loan to expand their respective businesses in Dallas. [Tape Recording, May 29, 2019, Tr. at 1:50:41 -1:51:17 p.m.]. Indeed, the Debtor expressly told Mohn that if DMM would extend financing of $150,000.00, all of the loan proceeds would be used solely to expand business operations in Dallas and that no loan proceeds would be used to pay Hanna or Carriger or for any non-business related purpose. [Tape Recording, May 29, 2019, Tr. at 2:00:10 - 2:00:50 p.m.]; [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12a, page 7 of 13]. The Debtor also informed Mohn that Blackwolf anticipated an increase in profits of approximately fifteen percent given the business in its pipeline. [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12e, page 7 of 13]. The Debtor also reviewed Blackwolf's balance sheet in order to acquaint Mohn with Blackwolf's financial condition at the time. [Tape Recording, May 29, 2019, Tr. at 1:50:17 - 1:50:27 p.m.]. However, the Debtor did not allow Mohn to take a copy of this balance sheet with him once the meeting adjourned because Mohn had not signed a non-disclosure agreement. [Tape Recording, May 29, 2019, Tr. at 1:50:25 - 1:50:32 *578p.m., 2:22:30 - 2:23:07 p.m.].
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Jeff Bohm, United States Bankruptcy Judge
I. INTRODUCTION
Danny Hanna ("the Debtor ") filed a Chapter 13 petition on January 23, 2017 ("the Petition Date ") [Main Case Doc. No. 1]. On May 9, 2017, DMM Group, Inc. ("DMM ") initiated the pending adversary proceeding against the Debtor [Adv. Doc. No. 1]. Prior to the Debtor's filing of his Chapter 13 petition, DMM extended a loan of $150,000.00 to the Debtor's 100%-owned company, a debt that the Debtor personally guaranteed. DMM requests this Court to enter a judgment for the amount of the unpaid loan, plus attorneys' fees and costs, as a nondischargeable debt for which the Debtor is liable under
*576The Court held a one-day trial in this adversary proceeding on May 29, 2019. The Court then took the matter under advisement. On July 1, 2019, this Court held a brief hearing to announce orally on the record that it had decided to grant the relief sought by DMM. The Court indicated that it would eventually issue written Findings of Fact and Conclusions of Law, together with a judgment, explaining its decision. However, the Court informed the parties that it would refrain from entering its written findings and conclusions, plus the judgment, until after DMM had proven up its reasonable attorneys' fees and costs. The Court instructed DMM's counsel to submit his fee bills to counsel for the Debtor by no later than noon on July 3, 2019, and also instructed the Debtor's counsel to file a certificate by no later than 5:00 p.m. on July 10, 2019 setting forth whether the Debtor objected to the amount of the fees and expenses requested by DMM. The Court further stated that if, and only if, the Debtor filed an objection would this Court hold a separate evidentiary hearing requiring DMM to prove up its reasonable attorneys' fees and expenses.
DMM's counsel did, in fact, timely submit his firm's fee bills, which reflect that the DMM's fees and expenses total $19,031.79. [Adv. Doc. No. 42]. The deadline of July 10, 2019 for the Debtor to file a certificate objecting to this amount has expired, and the Debtor has lodged no objection. Accordingly, the Court finds that the Debtor agrees that the amount of $19,031.79 is a reasonable amount for DMM to recover from the Debtor.2
Now that the issue of reasonable attorneys' fees and expenses has been determined, the Court proceeds to issue these written Findings of Fact and Conclusions of Law pursuant to Rule 7052 explaining why it has decided to grant the relief requested by DMM and enter a judgment declaring that $219,535.47, the outstanding amount owed under the loan documents (including unpaid principal, accrued unpaid interest, attorneys' fees and expenses) is a nondischargeable obligation owed by the Debtor. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; and to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. The Court reserves the right to make additional findings and conclusions as this Court deems appropriate or as may be requested by either of the parties.
II. FINDINGS OF FACT
1. The Debtor is a former principal of Blackwolf Security Group, LLC ("Blackwolf "). Blackwolf's headquarters was in the Woodlands, Texas, and it was in the security business-i.e. providing security to various corporations and organizations. [Tape Recording, May 29, 2019, Tr. at 10:17:24 - 10:17:35 a.m., 2:53:38 - 2:54:14 p.m.].
2. DMM is owned entirely by Dale Mohn ("Mohn "). [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m.]. Mohn is the sole decision-maker for DMM, whose business *577involves security consulting and making investments, which includes extending loans. [Tape Recording, May 29, 2019, Tr. at 1:47:54 - 1:48:06 p.m., 1:49:28 - 1:49:32 p.m., 2:20:22-2:20:46 p.m.].
3. Patrick Magill ("Magill ") is an accountant who has referred business to DMM in the past. [Tape Recording, May 29, 2019, Tr. at 1:49:25 - 1:49:42 p.m.].
4. Magill also provided accounting services to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:42 - 1:49:54 p.m.].
5. Magill suggested to Mohn that DMM might want to provide financing to Blackwolf, and a meeting was subsequently arranged. [Tape Recording, May 29, 2019, Tr. at 1:49:35 - 1:49:42 p.m.].
6. In early June of 2016, Mohn met with the Debtor, Magill, and Catherine Carriger ("Carriger "). [Tape Recording, May 29, 2019, Tr. at 1:48:46 - 1:49:03 p.m.]. The purpose of the meeting was to introduce the parties and to discuss a possible loan from DMM to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 1:49:03 - 1:49:42 p.m.]. At this meeting, Mohn met the Debtor and Carriger for the first time. The Debtor informed Mohn that Carriger was in the process of obtaining a security permit and setting up her own minority-owned company in Dallas-Blackwolf SG, LLC ("SG ")-to maximize the potential of securing a large contract with the U.S. Department of Labor. [Tape Recording, May 29, 2019, Tr. at 2:54:48 - 2:55:07 p.m.].
7. This meeting lasted approximately ninety minutes. [Tape Recording, May 29, 2019, Tr. at 1:52:03 - 1:52:08 p.m.]. The Debtor did much of the speaking and expressly represented to Mohn that Blackwolf was expanding its operations with a Dallas office and was planning to start a training business in Dallas. [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact Nos. 12b and 12g, page 7 of 13]. The Debtor further represented to Mohn that Blackwolf and SG needed a $150,000.00 loan to expand their respective businesses in Dallas. [Tape Recording, May 29, 2019, Tr. at 1:50:41 -1:51:17 p.m.]. Indeed, the Debtor expressly told Mohn that if DMM would extend financing of $150,000.00, all of the loan proceeds would be used solely to expand business operations in Dallas and that no loan proceeds would be used to pay Hanna or Carriger or for any non-business related purpose. [Tape Recording, May 29, 2019, Tr. at 2:00:10 - 2:00:50 p.m.]; [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12a, page 7 of 13]. The Debtor also informed Mohn that Blackwolf anticipated an increase in profits of approximately fifteen percent given the business in its pipeline. [ Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 12e, page 7 of 13]. The Debtor also reviewed Blackwolf's balance sheet in order to acquaint Mohn with Blackwolf's financial condition at the time. [Tape Recording, May 29, 2019, Tr. at 1:50:17 - 1:50:27 p.m.]. However, the Debtor did not allow Mohn to take a copy of this balance sheet with him once the meeting adjourned because Mohn had not signed a non-disclosure agreement. [Tape Recording, May 29, 2019, Tr. at 1:50:25 - 1:50:32 *578p.m., 2:22:30 - 2:23:07 p.m.]. Based upon the financial statements that Mohn reviewed during the meeting, he tentatively concluded that Blackwolf and SG were viable operating entities to which DMM might extend financing. [Tape Recording, May 29, 2019, Tr. at 2:24:00 - 2:24:07 p.m.]. At this initial meeting, Mohn also asked some questions about Blackwolf, including whether the company was involved in any legal proceedings at the time. [Tape Recording, May 29, 2019, Tr. at 1:51:26 - 1:51:38 p.m.]. The Debtor responded that it was not-which was a truthful statement at that time. [Tape Recording, May 29, 2019, Tr. at 1:51:38 - 1:51:43 p.m.]. When the meeting was concluded, Mohn made no decision to provide the requested financing. [Tape Recording, May 29, 2019, Tr. at 1:51:18-1:51:25 p.m.].
8. In late August of 2016, the Debtor and Mohn met again to discuss the possibility of DMM extending a loan to Blackwolf and SG. [Tape Recording, May 29, 2019, Tr. at 1:52:29 - 1:52:41 p.m.]. Mohn also met Matt Antkowiak ("Antkowiak ") at this meeting. [Tape Recording, May 29, 2019, Tr. at 2:27:40 - 2:27:57 p.m.]. Antkowiak was Blackwolf's quality manager, compliance officer, and operations manager who would be responsible for opening and running Blackwolf's Dallas office and obtaining contracts with the Department of Labor. [Tape Recording, May 29, 2019, Tr. at 10:18:49 - 10:19:16 a.m., 10:45:56 - 10:46:18 a.m., 2:28:00 - 2:28:17 p.m.]. Paul Cherry ("Cherry "), a CPA and colleague of Magill, also attended this meeting. [Tape Recording, May 29, 2019, Tr. at 1:52:29 - 1:52:53 p.m.]. When the meeting was concluded, Mohn decided to provide the requested financing. [Tape Recording, May 29, 2019, Tr. at 2:31:44 - 2:31:57 p.m.].
9. On or about August 22, 2016, Blackwolf's account at Spirit of Texas Bank was frozen and the Spirit of Texas Bank commenced legal proceedings against Blackwolf, the Debtor, and Carriger. [Plaintiff's Ex. 28, BS 117-127]. This lawsuit was styled: Cause No. 2016-56225, Spirit of Texas Bank SSB v. Blackwolf Security Group LLC, Danny B. Hanna, and Catherine G. Carriger, in the 113th Judicial District Court, Harris County, Texas ("the State Court Lawsuit "). [Plaintiff's Ex. 28, BS 117-127]. The Debtor did not disclose these facts to Mohn at this time. [Tape Recording, May 29, 2019, Tr. at 11:00:08 - 11:00:27 a.m.].
10. On or about August 30, 2016, Blackwolf failed to make scheduled payroll to its employees. [Tape Recording, May 29, 2019, Tr. at 10:36:20 - 10:36:31 a.m.]. The Debtor did not disclose this fact to Mohn at this time. [Tape Recording, May 29, 2019, Tr. at 10:35:10 - 10:35:30 a.m.].
11. At this point in time, the Debtor became very concerned about the continued viability of Blackwolf. [Tape Recording, May 29, 2019, Tr. at 11:08:18 - 11:08:23 a.m.]. Indeed, at trial, the Debtor testified that at this point, Blackwolf was in "survival mode"-as opposed to the "expansion mode" frame of mind that he had conveyed to Mohn at the meeting in June. [Tape Recording, May 29, 2019, Tr. at 11:08:18 -*57911:08:23 a.m.]. The Debtor did not inform Mohn about Blackwolf's failure to make scheduled payroll or about the Debtor's view that Blackwolf was in "survival mode." [Tape Recording, May 29, 2019, Tr. at 11:08:51 - 11:09:32 a.m., 2:02:58 - 2:03:08 p.m.]. As already noted in Finding of Fact No. 9, at some point after the meeting among the Debtor, Antkowiak, Cherry, and Mohn in late August of 2016, Mohn, on behalf of DMM, and in reliance upon the Debtor's representations that Blackwolf would use loan proceeds solely to fund expansion in Dallas, made the decision to provide a $150,000.00 loan to Blackwolf and SG to fund their Dallas expansion. [Tape Recording, May 29, 2019, Tr. at 2:01:50 - 2:01:56 p.m.]. Mohn decided that DMM would provide the financing without doing any further due diligence or requesting any further financial statements from Blackwolf and SG. [Tape Recording, May 29, 2019, Tr. at 2:26:38 - 2:27:00 p.m.]. Mohn insisted, however, that the Debtor and Carriger personally guarantee the loan. [Tape Recording, May 29, 2019, Tr. at 1:57:06 - 1:57:30 p.m.]; [see Plaintiff's Ex. 2, BS 005-013]. Accordingly, on September 28, 2016, Blackwolf and SG, through their respective managing members (i.e. the Debtor and Carriger) executed that one certain promissory note in the original principal amount of $150,000.00 payable to DMM ("the Note "); and the Debtor and Carriger, in their individual capacities, executed a guaranty agreement ("the Guaranty ") guaranteeing payment of the Note. [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 4, page 6 of 13]. The Note and the Guaranty were unsecured obligations; DMM did not take a security interest in any assets. [See Plaintiff's Ex. 1, BS 001-004; Plaintiff's Ex. 2, BS 005-015]. The Note expressly required that Blackwolf provide notice of any litigation or dispute threatened against or affecting Blackwolf. [Plaintiff's Ex. 1, BS 002]. Despite this language, the Debtor never disclosed to Mohn the existence of the State Court Lawsuit. [Tape Recording, May 29, 2019, Tr. at 2:01:58 - 2:02:10 p.m., 2:02:35 - 2:02:49 p.m.].
12. Upon execution of the Note and the Guaranty, DMM delivered a check for $150,000.00 to Blackwolf. [Tape Recording, May 29, 2019, Tr. at 10:23:15 - 10:23:43 a.m., 11:54:02 - 11:54:38 a.m.]; [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 6, page 6 of 13]. This check was deposited into Blackwolf's operating account at Cadence Bank on September 30, 2016. [Plaintiff's Ex. 14, BS 059]. As of the close of business on September 30, 2016, the balance in Blackwolf's account was $186,234.78. [Plaintiff's Ex. 15, BS 071]. Stated differently, just prior to the deposit of the $150,000.00 of loan proceeds, Blackwolf had $36,234.78 of cash on hand. [See Plaintiff's Ex. 15, BS 071].
13. Upon receipt of the $150,000.00, Blackwolf very quickly used approximately $36,684.25 to pay past due payroll, and another $41,495.00 to make current payroll. [Plaintiff's Ex. 15, BS 066-085]; [Tape Recording, May 29, 2019, Tr at 10:32:35 - 10:32:52 a.m.]. Additionally, the Debtor and Carriger used $3,700.27 *580of these corporate funds to make the following expenditures on behalf of themselves:
a. $9.19 at a corner store on September 29, 2016.
b. $30.30 at a bar/restaurant (Canyon Creek) on September 29, 2016.
c. $70.34 at a liquor store (Vic's Liquor) on September 29, 2016.
d. $175.00 at a spa (Shag Spa and Salons) on September 29, 2016.
e. $100.08 at a bakery (Crave Bakeshop) on September 30, 2016.
f. $113.57 at a restaurant (Chili's) on September 30, 2016.
g. $203.00 on a cash withdrawal on October 1, 2016.
h. $19.50 at a movie theater (Cinemark) on October 1, 2016.
i. $57.10 at a grocery store (HEB) on October 1, 2016.
j. $169.96 at a restaurant (Babin's Seafood House) on October 1, 2016.
k. $449.23 at a sunglasses store (Sunglass Hut) on October 1, 2016.
l. $ 159.18 at a restaurant (Grotto Ristorante) on October 2, 2016.
m. $311.20 at a clothing store (Vineyard Vines) on October 2, 2016.
n. $512.33 at a clothing store (Vineyard Vines) on October 2, 2016.
o. $772.40 at a clothing store (Nordstrom Rack) on October 2, 2016.
p. $40.00 at a hair salon (Bio Blow Dry Bar) on October 4, 2016.
q. $280.00 at a hair salon (Bio Blow Dry Bar) on October 4, 2016.
r. $129.56 at a grocery store (HEB) on October 4, 2016.
s. $24.70 at a gas station (Shell) on October 6, 2016.
t. $73.63 on dry cleaning (MW Cleaners) on October 6, 2016.
[Plaintiff's Ex. 15, BS 066-085].
14. Aside from the expenditures noted above, Blackwolf also used $58,262.90 of the loan proceeds on the following corporate-related items, none of which had anything to do with expansion of Blackwolf's operations in Dallas:
a. $500.00 on Comcast on September 29, 2016.
b. $43.35 at FedEx on September 30, 2016.
c. $21.64 on Apple iTunes on October 2, 2016.3
d. $6,704.33 on workforce payment services (FleetCor) on October 3, 2016.
e. $28.20 at the United States Postal Service on October 3, 2016.
f. $131.89 at a restaurant (Papa John's) on October 4, 2016.
g. $146.13 on a cleaning service (Oops Steam Cleaning) on October 4, 2016.4
h. $1,005.50 on car payments on October 4, 2016.
i. $11.00 on Texas DPS on October 4, 2016.
j. $17.00 on private security in Austin (Texas DPS) on October 4, 2016.
k. $37.00 on private security in Austin (Texas DPS) on October 4, 2016.
*581l. $49.00 on private security in Austin (Texas DPS) on October 4, 2016.
m. $151.00 on private security in Austin (Texas DPS) on October 4, 2016.
n. $314.90 on accounting software (Intuit QuickBooks) on October 4, 2016.
o. $44,724.09 on payroll on October 5, 2016.5
p. $708.15 on legal fees (U.S. Texas LawShield) on October 5, 2016.
q. $6.47 at the United States Postal Service on October 5, 2016.
r. $163.25 on Comcast on October 5, 2016.
s. $3,500.00 on legal fees (Sinoski & Associates) on October 6, 2016.
[Plaintiff's Ex. 15, BS 066-085].
15. By October 7, 2016, Blackwolf had a negative balance in its operating account of $1,039.76. [Plaintiff's Ex. 15, BS 071]. This balance underscores that in one week, Blackwolf spent the entire loan proceeds of $150,000.00 on past due payroll, current payroll, various personal items for the Debtor and Carriger, and several corporate-related expenditures totally unrelated to any expansion in Dallas.6 [Plaintiff's Ex. 15, BS 071], The expenditures were clearly evidenced by statements of credit card transactions and checks from Blackwolf's corporate account at Cadence Bank. [Plaintiff's Ex. 15, BS 071]. No proceeds at all were spent on expanding Blackwolf's business in Dallas. [Tape Recording, May 29, 2019, Tr. at 11:19:48 - 11:20:59 a.m.]; indeed, the Debtor produced no evidence that any funds were used for expansion in Dallas after the loan proceeds were disbursed but before Blackwolf's balance became negative.
16. On November 20, 2016, the Debtor sent his attorney an email inquiring about the status of the State Court Lawsuit. [Plaintiff's Ex. 5, BS 019]. In the email, the Debtor indicated that the matter needed "immediate attention." [Plaintiff's Ex. 5, BS 019].
17. Blackwolf failed to make the first payment of $4,500.00 on the Note when it became due and payable on December 28, 2016. [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 10, page 7 of 13]. Through emails and phone messages, Mohn inquired as to the status of repayment when it was past due, but the Debtor failed to respond. [Tape Recording, May 29, 2019, Tr. at 2:17:13 - 2:17:21 p.m.]; [Plaintiff's Ex. 8, BS 025].
*582Neither Blackwolf nor the Debtor (nor Carriger) ended up making any payments to DMM under the Note. [Tape Recording, May 29, 2019, Tr. at 11:46:47 - 11:46:49 a.m., 2:17:55 -2:18:04 p.m.]
18. According to the loan repayment schedule under the Note, DMM would have received $177,000.00 in total if Blackwolf had made timely payments. [Plaintiff's Ex. 1, BS 004], DMM never recovered any of the $150,000.00 principal or one cent of interest.
19. The Debtor filed a voluntary petition for relief under Chapter 13 of the Code on January 23, 2017 ("Petition Date "). [Joint Pretrial Statement, Adv. Doc. No. 35, Stipulated Fact No. 11, page 7 of 13].
III. CREDIBILITY OF WITNESSES
Only two witnesses testified at the trial: the Debtor and Mohn.7 The Court finds that Mohn was a very credible witness and gives substantial weight to his testimony.
The Court finds that the Debtor was less than entirely credible; therefore, the Court gives less weight to his testimony than it does to Mohn's testimony. The Court finds that the Debtor's credibility is questionable because of his selective memory when answering certain questions and his disingenuous attempt to define "business expansion" in Dallas to include using loan proceeds to pay for past-due wages of Blackwolf's employees and other expenses that have absolutely nothing to do with Dallas.
IV. CONCLUSIONS OF LAW
A. JURISDICTION
This Court has jurisdiction over this dispute pursuant to
This suit is a core proceeding because it is a suit to determine the dischargeability of a specific debt pursuant to
B. Venue
Venue is proper under
C. Constitutional Authority to Enter a Final Judgment in the Adversary Proceeding at Bar
In the wake of the Supreme Court's issuance of Stern v. Marshall,
Alternatively, even if Stern applies to all of the categories of core proceedings brought under § 157(b)(2), see First Nat'l Bank v. Crescent Elec. Supply Co. (In re Renaissance Hosp. Grand Prairie Inc.),
Finally, in the alternative, this Court has the constitutional authority to enter a final judgment on DMM's complaint because DMM and the Debtor have consented, impliedly if not explicitly, to adjudication of this dispute by this Court. Wellness Int'l Network, Ltd. v. Sharif, --- U.S. ----,
D. Dischargeability of Debt Under 11 U.S.C. § 523 (a)(2)(A)
In an adversary proceeding to determine the dischargeability of a debt under § 523(a), the plaintiff bears the burden of proving the elements by a preponderance of the evidence.9 Grogan v. Garner,
E. Description of the Debt that DMM Asserts Should Not to Be Discharged
At the outset, it is important to define which debt DMM seeks to prevent from being discharged. First, the Debtor executed the Guaranty that guarantees repayment of any amounts owed by Blackwolf under the Note. Thus, because the principal balance of the Note that Blackwolf did not pay is $150,000.00, the Debtor has personal liability for this amount, plus accrued unpaid interest and all other amounts owed under the Note. DMM alleges that the Debtor should not be discharged from this liability. DMM's contention is that pursuant to § 523(a)(2)(A), the Debtor incurred this guarantor liability through false representations or false pretenses associated with the extension of credit that DMM provided to Blackwolf. See, e.g., Weiss v. Alicea (In re Alicea),
In sum, under guaranty liability, DMM contends that the Debtor owes DMM a nondischargeable debt. The Court will now address DMM's claims as to guarantor liability under § 523(a)(2)(A).
F. Overview of DMM's Claims under § 523(a)(2)(A) Based Upon the Debtor's Guarantor Liability
DMM has brought two claims against the Debtor under § 523(a)(2)(A) : one for false representations and one for false pretenses. There is a distinction between false representations and false pretenses. Wright v. Minardi (In re Minardi),
G. DMM's Claim Under § 523(a)(2)(A) for False Representations
DMM's first claim against the Debtor is based upon § 523(a)(2)(A) for false representations. DMM contends that the Debtor obtained financing from DMM for Blackwolf and SG through false representations. To obtain a judgment that a debt is nondischargeable for false representations, the misrepresentations must have been: (1) knowing and fraudulent falsehoods, (2) describing past or current facts, (3) that were relied upon by the other party. Jacobson v. Ormsby (In re Jacobson), No. 06-51460,
1. Knowing and Fraudulent Falsehoods
The Debtor committed knowing and fraudulent falsehoods in his dealings *586with DMM. When considering whether a knowing and fraudulent falsehood has been made, the subjective mindset of the promisor is the focus. Higgins v. Nunnelee (In re Nunnelee),
Intent is a fact question within the realm of the trier of fact because it is dependent upon the credibility of the witnesses and the weight to be given their testimony .... [B]reach of a promise to perform combined with "slight circumstantial evidence" of fraud constitutes some evidence of fraudulent intent and is legally sufficient to support a verdict.
Nwokedi,
In the suit at bar, DMM asserts that the Debtor had no intention for Blackwolf or himself to repay the Note as promised because: (1) the Debtor and Carriger immediately used some of the loan proceeds to pay for extravagant personal expenses [Finding of Fact No. 13 ];10 (2) Blackwolf immediately used all of the other loan proceeds to pay Blackwolf's past-due payroll, current payroll, and numerous other expenses [Finding of Fact Nos. 14-15]; (3) none of the loan funds were used to expand business in Dallas [Finding of Fact Nos. 13-15]; (4) the Debtor did not make a single loan payment on the Note [Finding of Fact No. 17 ]; (5) the Debtor believed *587that Blackwolf was in survival mode in late August and September of 2016 [Finding of Fact No. 11 ]. and therefore he knew when he signed the Note and the Guaranty that the funds would not be used for expansion of business in Dallas; and (6) the Debtor filed for bankruptcy shortly after the payments under the Note came due but after all of the loan proceeds were already spent [Finding of Fact Nos. 17-19]. The contract between Blackwolf and DMM-i.e. the Note-was understood to be for a loan by which Blackwolf would expand its Dallas operation. [Finding of Fact No. 7 ]. Yet, DMM presented clear and unequivocal evidence that the Debtor (and Carriger) used all of the loan proceeds for their own personal benefit and for payment of Blackwolf's expenses that had nothing to do with expansion of operations in Dallas. [Finding of Fact Nos. 13-14]. Indeed, the Debtor presented no evidence that he directly used any of DMM's loan to expand Blackwolf's Dallas operations. [Finding of Fact No. 15 ]. The Debtor's rapid use of the loan funds for personal and corporate purposes that had nothing to do with expansion in Dallas and his subsequent failure to answer Mohn's communications indicate that the Debtor, well before he executed the Note and the Guaranty on September 28, 2016, had no intention of using the funds to expand the Dallas operation or pay back the loan according to the terms of the Note and the Guaranty.
Furthermore, the Debtor deliberately failed to disclose Blackwolf's involvement in the State Court Lawsuit. [Finding of Fact No. 9 ]. This point is underscored by the fact that the Debtor asked his attorney about the status of the State Court Lawsuit after the Debtor told Mohn that Blackwolf was not involved in any legal proceedings in the early June 2016 meeting. [Finding of Fact Nos. 7, 16]. The State Court Lawsuit was filed on or about August 22, 2016. [Finding of Fact No. 9 ]. The Debtor did not disclose to Mohn Blackwolf's involvement in the State Court Lawsuit before the loan proceeds were disbursed on September 28, 2016. [Finding of Fact Nos. 9, 12]. Yet, the Note required that Blackwolf provide notice of any litigation or dispute threatened against or affecting Blackwolf. [Finding of Fact No. 11 ]. Therefore, Blackwolf had a duty to tell inform DMM about any litigation or dispute threatened against or affecting Blackwolf. Because silence can constitute fraudulent misrepresentation when one has a duty to speak,11 the Debtor fraudulently misrepresented material facts concerning the status of Blackwolf's involvement in the State Court Lawsuit.
In response to DMM's allegations, the Debtor contends that he believed the litigation would have no effect on Blackwolf and that he always intended to repay the loan, but circumstances beyond his control prevented him from doing so. [Tape Recording, May 29, 2019, Tr. at 11:57:37 a.m. - 12:03:02 p.m.]. The Debtor's testimony does not reflect his actions, and this Court simply does not believe him. Indeed, the Debtor expressly asked his attorney about the status of the State Court Lawsuit. [Finding of Fact No. 16 ]. This would not have occurred if he was positive the lawsuit would not affect Blackwolf. Furthermore, the Debtor indicated that the matter required immediate attention, demonstrating his perception of the lawsuit's significance. [Finding of Fact No. 16 ]. Moreover, the Debtor's failure to communicate at all with Mohn upon the failure to make timely payments under the Note was well within his control. [See Finding of Fact No. 17 ]. If the Debtor was intent on repaying the loan, he would have been *588more communicative and forthright with Mohn. Dodging calls and emails and quickly filing bankruptcy indicates the Debtor did not intend to repay the loan at the time the first payment came due. [See Finding of Fact Nos. 17, 19].
For all of the above-referenced reasons, DMM has met its burden of establishing that the Debtor committed knowing and fraudulent falsehoods.
2. The Debtor Described Past or Current Facts
The Fifth Circuit has explained that "a promise to perform acts in the future is not considered a qualifying misrepresentation merely because the promise subsequently is breached." In re Allison,
DMM asserts that the Debtor's misrepresentations in meetings with Mohn concerned current facts of his future intention-namely, that the Debtor was going to use the loan funds for business expansion in Dallas. The Debtor argues that he did not describe a past or current fact, which in turn leads him to assert that DMM has failed to satisfy its burden of proving past or current facts.
This Court disagrees. The Debtor accepted the loan proceeds on September 28, 2016, knowing full well that he and Carriger would-within a few days-use all the loan funds to pay for personal items and corporate expenses having nothing to do with expanding Blackwolf's business in Dallas. [Finding of Fact Nos. 13, 14]. After all, the Debtor-without any disclosure whatsoever to DMM for the five weeks between the commencement of the State Court Lawsuit and the loan disbursement on September 28, 2016-knew that: (1) the State Court Lawsuit existed; (2) Blackwolf was in default on its employee payroll; and (3) Blackwolf was in "survival mode" due to a lack of cash flow. [Finding of Fact Nos. 9-11]. Under these circumstances, the Court finds that the Debtor's representations made about the use of the loan proceeds for expansion in Dallas were representations that the Debtor had no intention of performing as promised at the time Blackwolf accepted the $150,000.00 from DMM. DMM has therefore satisfied its burden in this respect.12
*589Case law supports this conclusion. In Jacobson, the borrower represented to the lender that he would use any loan proceeds advanced by the lender for a specific purpose. Jacobson v. Ormsby (In re Jacobson), No. 04-51572-RBK,
Like the borrower in Jacobson, the Debtor, in his communications with Mohn prior to the September 28, 2016 loan closing, expressly stated that the loan proceeds were to be used to help fund Blackwolf's Dallas expansion. [Finding of Fact No. 7 ]. Instead, the Debtor used the loan proceeds of $150,000.00 to pay for his own personal expenses and corporate expenses of Blackwolf totally unrelated to the Dallas expansion. [Finding of Fact Nos. 13, 14]. Indeed, not one dime was spent on Dallas expansion efforts. [Finding of Fact No. 15 ]. This is because contrary to what the Debtor repeatedly represented to Mohn in his communications with him prior to the September 28, 2106 loan closing, the Debtor did not intend for Blackwolf's loan to be used for Blackwolf's Dallas operations at the time the loan proceeds were disbursed. Rather, at the time the loan proceeds were disbursed, he intended that any loan proceeds advanced under the Note would be used for his own and Carriger's personal expenses and coming current with Blackwolf's pre-existing debts, not the least of which was its past-due payroll. [See Finding of Fact Nos. 13-15]. Indeed, this is why the Debtor did not return any of Mohn's attempts at communication when the first payment on the Note became due, but was not paid. [See Finding of Fact No. 17 ]. This is also why the Debtor, prior to the loan closing of September 28, 2016, did not make disclosure about: (1) the existence of the State Court Lawsuit; (2) Blackwolf's existing default on its own payroll; (3) that Blackwolf was in a "survival mode" as opposed to an "expansion mode"; and (4) his intention, plus Carriger's intention, to use some of the loan proceeds for personal luxury items. [See Finding of Fact Nos. 9-11, 13]. The Debtor most assuredly did not want DMM to know that all loan proceeds would be used for Blackwolf's backpay and the Debtor and Carriger's personal expenses, as the Debtor knew that DMM would not advance funds under the Note if it knew that the loan proceeds would be used for something other than the purpose of expanding business operations in Dallas.
Under all of these circumstances, the Court finds that in the first instance, the *590Debtor's representation that Blackwolf was not in litigation was a false statement about a current fact because on the date of the loan closing-September 28, 2016-Blackwolf was a defendant in the State Court Lawsuit. [Finding of Fact No. 9 ]. Hence, DMM has met its burden to prove a current fact. Moreover, as of the date of the loan closing, the Debtor knew that Blackwolf was in default to its own employees and was in a "survival mode," and yet he deliberately failed to disclose these current facts to Mohn that would have corrected the false impression that Mohn had on that day that Blackwolf was in sound financial shape and that the loan proceeds would be used solely for business expansion purposes in Dallas. [See Finding of Fact Nos. 6-7, 10-12]. This Court finds that the Debtor's silence about these current facts satisfies this second element of section 523(a)(2)(A) for false representations. Indeed, like the debtor in Jacobson, the Debtor here immediately spent the loan proceeds by paying for items other than what DMM believed the loan proceeds would be used for based upon the Debtor's express representations. [See Finding of Fact No. 7 ].
Thus, for all of the above-referenced reasons, this Court concludes that DMM has satisfied its burden and finds that the Debtor's representations described past or current facts.
3. DMM Relied Upon the Debtor's False Representations
The next element to obtain a judgment that a debt is nondischargeable for false representations is the necessity that DMM relied on the Debtor's representations. Field v. Mans,
DMM asserts that it justifiably relied on the representations the Debtor made at *591their initial meeting in June of 2016, and subsequent meeting in late August of 2016, as well as the Debtor's silence regarding Blackwolf's involvement in the State Court Lawsuit and its "survival mode" status by the time the loan proceeds were disbursed. [See Findings of Fact Nos. 7-9, 11]. And, in fact, DMM has proven that at the time the loan proceeds were disbursed, the Debtor failed to disclose the existence of the State Court Lawsuit or that Blackwolf was in survival mode and was not going to use the funds for expansion into Dallas, but rather to pay past-due corporate debts, existing corporate debts unrelated to Dallas expansion, and the personal expenses of the Debtor and Carriger. [See Findings of Fact Nos. 14-15].
Under all of these circumstances, the Court finds that DMM justifiably relied upon the representations that the Debtor made orally to Mohn at the meeting in early June of 2016, the meeting in late August of 2016, and the silence between the late August of 2016 meeting and September 28, 2016, when the loan funds were disbursed. It was not readily apparent or obvious to Mohn that the representations were false; he had no reason to believe that the Debtor was lying to him about Blackwolf being in good financial standing or was not involved in any litigation or dispute threatened against or affecting it. There were simply no "red flags"-to use the language of Third Coast Bank -that would have required DMM to further investigate whether the Debtor's representations-namely, that all loan proceeds would be used for expansion in Dallas-might be inaccurate and therefore should not have been relied upon. Moreover, Magill had previously referred prospective borrowers to DMM [ Finding of Fact No. 3 ], and there is no evidence that DMM had experienced any issues of dishonesty or lack of integrity with these individuals. Here, DMM had a track record with Magill's referred borrowers that gave it some level of comfort about the Debtor that it otherwise might not have had.
Under all of these circumstances, the Court finds that DMM has met its burden of showing that it justifiably relied upon the Debtor's representations.
4. The Debtor's Conduct Caused Damage to DMM
There is no question that the Debtor's conduct caused damage to DMM. Not only did the Debtor deprive DMM of the funds it loaned to Blackwolf by deliberately remaining silent about Blackwolf's poor financial condition and involvement in the State Court Lawsuit and signing loan documents containing provisions with which he had no intention of complying; the Debtor also deprived DMM from recovering the $150,000.00 it loaned to Blackwolf or any of the interest that accrued on the loan. [Finding of Fact No. 18 ]. But for the skullduggerous actions of the borrower's principal-i.e., the Debtor-DMM would have suffered no harm. Therefore, the Debtor undeniably caused damage to DMM. In re Kroh,
In sum, DMM has met its burden in establishing all of the elements of a claim for false representations. Therefore, this Court finds that all of the indebtedness owed under the Note and the Guaranty is non-dischargeable. The Court now addresses DMM's claim for false pretenses.
H. DMM's Claim under § 523(a)(2)(A) for False Pretenses
DMM's second claim against the Debtor is based upon § 523(a)(2)(A) for *592false pretenses. To obtain a judgment that a debt is nondischargeable for false pretenses, the creditor must show the following: (1) the debtor engaged in conduct "wronging one in his property rights by dishonest methods or schemes [such as] deprivation of something of value by trick, deceit, chicane[ry] or overreaching;" (2) scienter or intent; (3) causation; and (4) damages. Novartis Corp. v. Luppino (In re Luppino),
1. The Debtor's Dishonest Conduct Injured DMM's Property Interest
The Debtor's dishonest conduct prior to the loan closing resulted in injury to DMM's property interest: namely, the $150,000.00 that DMM loaned Blackwolf that DMM never recovered. [See Finding of Fact No. 18 ]. In early June of 2016, the Debtor and Magill first met with Mohn to discuss funding Blackwolf and SG's expansion into Dallas. [Finding of Fact No. 7 ]. Importantly, the Debtor only indicated the need for financing for Blackwolf and SG's expansion [id. ], not for Blackwolf's previously incurred debts or for luxury items for the Debtor and Carriger. [See Finding of Fact Nos. 13-14]. Yet, while DMM was considering funding Blackwolf's expansion during late August and September of 2016, Blackwolf was in survival mode, did not make timely payroll to its employees, and was sued in the State Court Lawsuit; meanwhile, the Debtor said absolutely nothing to DMM about these facts. [Finding of Fact Nos. 9-11]. The Debtor had a duty to disclose to DMM after Blackwolf's involvement in the State Court Lawsuit that it was involved in the State Court Lawsuit given that Mohn had asked the Debtor if Blackwolf was involved in legal proceedings at the first meeting in early June and the Debtor answered that it was not.14 [Finding of Fact No. 7 ]. The Debtor also had a duty to disclose that Blackwolf had not made payroll and was in "survival mode" after leading Mohn to believe that *593the loan proceeds would be used only for expansion and that Blackwolf was in a favorable financial position. [Finding of Fact Nos. 7, 10-11]. See Check Control, Inc. v. Anderson (In re Anderson),
The Debtor and Carriger then went to the loan closing on September 28, 2016, and signed the Note and Guaranty while continuing to say nothing about Blackwolf's survival mode financial situation, including failure to make payroll, or involvement in the State Court Lawsuit, or their intention to purchase personal luxury items-all of which led DMM to believe that: (1) Blackwolf was in a favorable financial position and not involved in any litigation; and (2) any proceeds funded under the Note would be used for solely Blackwolf's and SG's Dallas expansion operations. The Debtor's conduct was dishonest and harmed DMM because: (1) DMM did not have an opportunity to weigh whether it wanted to make the loan given the adverse change in Blackwolf's financial position; (2) DMM did not have an opportunity to weigh whether it wanted to make the loan given Blackwolf's involvement in the State Court Lawsuit; and (3) DMM did not know Blackwolf was in the woeful cash flow position that it was when DMM disbursed the loan proceeds. [Finding of Fact Nos. 9-12]. Stated differently, the Debtor's deceitful conduct during late August and September of 2016 deprived DMM of its right to know the intended purpose of the loan and how much risk was actually associated with the loan-all of which eventually resulted in DMM being duped into advancing $150,000.00 as an unsecured loan that has never been repaid. [Finding of Fact No. 18 ]. The Court finds that the Debtor's conduct was dishonest and falls within the parameters of "false pretenses." In re Dunston ,
The Debtor had a duty to disclose to DMM the facts about Blackwolf's involvement in the State Court Lawsuit and weak financial position before proceeding with the loan closing, but he deliberately chose not to do so. Phillips 66 Co. v. Miltenberger (In re Miltenberger),
The Debtor's complete silence about the State Court Lawsuit and Blackwolf's financial woes constitutes extreme dishonesty on his part that created a false impression upon which DMM relied to advance $150,000.00 on September 28, 2016.
Under the circumstances described above, this Court finds that DMM has met its burden in proving the existence of the first element of false pretenses.
2. The Debtor Had Scienter or Intent to Deceive
"When deciding whether a creditor has satisfied the 'intent' prong of a 'false pretenses' dischargeability exception, the bankruptcy court must consider whether the circumstances, as viewed in the aggregate, present a picture of deceptive conduct by the debtor, indicating an intent to deceive his creditor." In re Hurst,
This Court finds that the Debtor knew the intended use of the loan proceeds and the incorrect perception Mohn had about Blackwolf's financial standing and involvement in the State Court Lawsuit. The Debtor knew that he had represented to Mohn at the initial meeting in June of 2016 that the funds would be used solely for Blackwolf and SG's Dallas expansion. [Finding of Fact No. 7 ]. Further, the Debtor knew that Mohn had inquired about Blackwolf's involvement in any legal proceedings and the Debtor had told Mohn Blackwolf was not involved in any lawsuits [Finding of Fact No. 9 ], so Mohn continued to believe Blackwolf was not involved in any such proceedings when that was in fact not true; indeed, the State Court Lawsuit was begun in August of 2016. [Finding of Fact Nos. 9, 12]. Though the Debtor knew of Mohn's incorrect impressions *595about Blackwolf prior to the loan being disbursed, the Debtor did not make any attempt to correct these impressions, which he had a legal duty to do. See In re Selenberg,
For all of the reasons set forth above, this Court finds that DMM has met its burden in establishing that the Debtor had scienter.
3. The Debtor's Actions Caused DMM to Lose its Property Interest
When discussing DMM's false representation claim above in the section on false representations, this Court noted that DMM had to demonstrate its justifiable reliance on the representations made by the Debtor. DMM does not bear such a burden in its claim for false pretenses. As one court has stated:
With respect to [justifiable reliance], it is not meaningful to examine into the "justifiable reliance" of a creditor in the case of fraudulent or deceitful conduct involving non-disclosure or concealment. But "reliance" in classic fraud is, in reality, nothing more nor less than the element of causation, since it is the creditor's reliance which provides the causal link between the debtor's false representation and the creditor's damage. Thus, in a case involving false pretenses or fraud based upon the debtor's non-disclosure or concealment, classic reliance cannot and need not be proved, but the creditor must nevertheless establish a causal link between the debtor's misconduct and the creditor's injury.
In re Luppino,
It is clear to this Court that the Debtor concealed the following material facts from DMM: (1) Blackwolf's involvement as a defendant in the State Court Lawsuit [Finding of Fact No. 9 ]; (2) Blackwolf's being in default on its own payroll [Finding of Fact No. 10 ]; (3) Blackwolf was in "survival mode" and not in a good financial standing after the second meeting in late August of 2016 [Finding of Fact No. 11 ]; and (4) the Debtor's intention to use some of the loan proceeds to purchase luxury items for himself and Carriger [Finding of Fact No. 13 ]. Without knowledge of these pertinent facts, DMM had no idea that its loan would not be repaid at all. Moreover, although the court in Luppino suggests that there is no need to examine DMM's justifiable reliance in this suit, there is no question that a reasonable and prudent lender would not lend money to a company similarly situated to Blackwolf while knowing all of the facts that the Debtor failed to disclose. Stated differently, but for the Debtor's non-disclosure of the material facts mentioned above, DMM would not have extended the loan to Blackwolf. In sum, it is clear that the Debtor's misconduct caused DMM: (1) to provide funding of $150,000.00 that it would not have otherwise *596provided; and (2) to then subsequently fail to recover any of its loan.
As previously discussed herein, there is no question that the Debtor's conduct caused damage to DMM. The Debtor deprived DMM of the $150,000.00 of proceeds disbursed under the Note, and also deprived DMM of the accrued unpaid interest due thereunder, by accepting loan funds that he had no intention of repaying [See Finding of Fact Nos. 13, 17-18]. But for the skullduggerous actions described above of the borrower's principal-i.e., the Debtor-DMM would have suffered no harm. Therefore, the Debtor undeniably caused damage to DMM. In re Kroh,
In sum, DMM has met its burden in establishing all of the elements of its claim for false pretenses. Accordingly, the Court finds that debt incurred by the Debtor by virtue of his execution of the Guaranty-which totals all amounts owed under the Note (including unpaid principal of $150,000.00, accrued, unpaid, interest, and attorneys' fees and expenses)-was incurred through false pretenses, which in turn leads this Court to conclude that this amount is a nondischargeable obligation. The Court now addresses the amount of accrued unpaid interest owed under the Note and why this interest constitutes a nondischargeable obligation.
I. Pre- and Post-Judgment Interest
1. Pre-Judgment Interest
At first blush, it would appear that DMM is not entitled to pre-judgment interest because unsecured claimants-which is the category into which DMM fits [Finding of Fact No. 12 ]-are generally not entitled to recover post-petition interest.
Interest under the Note accrues at a per *597diem rate of $49.32.17 The loan disbursement date was September 28, 2016. The date that this Court is entering judgment on the docket is July 19, 2019. Thus, interest has accrued for 1024 days, which means that the total amount of interest that has accrued is $50,503.68 (i.e. $49.32 x 1024).
When the pre-judgment interest of $50,503.68 is added to the outstanding principal owed under the Note-i.e., $150,000.00-the total amount of the nondischargeable debt owed by the Debtor (excluding attorneys' fees and costs) is $200,503.68 (the "$200,503.68 Debt ").
2. Post-Judgment Interest on the $200,503.68 Debt
This Court's award of post-judgment interest will accrue during the period from the date the judgment is rendered until the date the judgment is satisfied. La. Power & Light Co. v. Kellstrom,
J. Attorneys' Fees and Expenses
1. Applicable Law
With respect to DMM's request for attorneys' fees, the holding in Cohen is that a nondischargeable debt in a § 523(a)(2)(A) claim encompasses not only the debt created by the fraud, but also an award of attorneys' fees and expenses, among other damages. Stated differently, *598the word "debt" in § 523(a)(2)(A) includes any form of damage that can be causally linked to the conduct that gives rise to the nondischargeable debt. Cohen,
Of course, under the so-called "American Rule," each party pays its own attorneys' fees arising out of litigation except when specific authority granted by statute or contract states otherwise. "Since the Bankruptcy Code does not address whether creditors can recover attorney's fees in nondischargeability cases, they can only do so if allowed by another statute or by contract." Schwertner Backhoe Servs., Inc. v. Kirk (In re Kirk),
2. Application of the Law to the Suit at Bar
In the suit at bar, the Court finds that there is a contractual basis for awarding attorneys' fees to DMM. First, the Guaranty that the Debtor signed promises to pay DMM:
(a) within two (2) business days after the date Lender notifies Guarantors in the manner herein provided of Borrower(s) failure to pay the Indebtedness at maturity or otherwise and at the place specified in the Note for payment, the full amount of the unpaid Indebtedness and (b) Lender's reasonable attorneys' fees and all court costs incurred by Lender in enforcing or protecting any of Lender's rights, remedies or recourses under this Guaranty.
[Pl. 's Ex. No. 2 at 1 ] (Emphasis added). Second, the Note contains language expressly authorizing the payment of any attorneys' fees and costs incurred by DMM in collecting the amounts due under the Note:
If this Note is placed in the hands of an attorney for collection, or is collected in whole or in part by suit or through probate, bankruptcy or other legal proceedings of any kind, the Company(s) agrees to pay, in addition to all other sums payable hereunder, all costs and expenses of collection, including but not limited to reasonable attorneys' fees.
[ Pl.'s Ex. No. 1 at 2 ].
Because: (1) the Debtor guaranteed all of the indebtedness made under the Note; (2) the Note provides that Blackwolf must pay DMM's attorneys' fees if DMM has to collect the balance made under the Note through an attorney; (3) the Guaranty provides that the Debtor should pay DMM's attorneys' fees if DMM has to retain an attorney to enforce the Guaranty; and (4) DMM has, in fact, had to retain a law firm to collect the amounts under the Note and enforce the Guaranty, there is no question that the Debtor is contractually liable to DMM for the attorneys' fees, court costs, *599and expenses that DMM has incurred in the prosecution of this adversary proceeding. Aside from the above-referenced provisions, both the Note and the Guaranty contain provisions expressly setting forth that the laws of the state of Texas govern these two agreements. This is important because section 38.001 of the Texas Civil Practice and Remedies Code expressly sets forth that: "A person may recover reasonable attorney's fees from an individual or corporation, in addition to the amount of a valid claim and costs, if the claim is for ... an oral or written contract." Thus, because: (1) the Debtor personally guaranteed the Note; (2) both the Note and the Guaranty contain provisions allowing for recovery of attorneys' fees; and (3) an express Texas statute provides for the recovery of attorneys' fees for claims under a written contract, this Court concludes that DMM is entitled to its reasonable attorneys' fees for successfully prosecuting this adversary proceeding because there is both a contractual and statutory basis for obtaining such relief.
This Court has the authority to determine just exactly what amount of fees is reasonable. FED. R. BANKR. PROC. 7054(b)(2) ; see also Perkins v. Standard Oil Co. of Ca.,
For its part, the Court has exercised its independent duty to examine the reasonableness of this amount, and the Court finds that the amount is reasonable based upon the record made by DMM's counsel at a hearing held on July 15, 2019. Specifically, this counsel very credibly testified that the total expenses sought by DMM are $1,759.79, almost all of which represents deposition costs made by DMM-an expense which this Court finds to be both necessary and reasonable as part of DMM's prosecution of this adversary proceeding. Counsel also testified that the total attorneys' fees for prosecuting this adversary proceeding were $25,610.50, but that his law firm gave a discount to DMM of $8,338.50-resulting in total attorneys' fees of $17,272.00. The Court has reviewed the fee bills introduced into evidence by DMM's counsel, and finds that these bills comply with U.S. Trustee guidelines and applicable law. Specifically, these fee bills describe in detail the services that were rendered, the date that the services were rendered, the person rendering the service, the hourly rate of the person rendering the service, and the value of the service. The Court finds that all of the services that were rendered were reasonable and necessary at the time that they were rendered. Moreover, there is no question that the services rendered by DMM's counsel resulted in an excellent result for DMM; this Court is entering a judgment that the Debtor owes DMM a nondischargeable amount of $219,535.47. Further, this Court finds that the hourly rates of the two attorneys and one legal assistant who provided services to DMM were not only very reasonable, but they are below market rate given the experience and competence of these attorneys and legal assistant (See Mid-Continent Cas. Co. v. Petroleum Sols., Inc., No. CV 4:09-0422,
3. Post-Judgment Interest on the Total Amount of Attorneys' Fees and Expenses
The Court will also order the Debtor to pay post-judgment interest on the total amount of attorneys' fees and expenses awarded to DMM. The Fifth Circuit has held that interest on attorneys' fees begins to accrue on the date of the judgment allowing recovery of attorneys' fees and runs until the date the fees are paid in full. See Copper Liquor, Inc. v. Adolph Coors Co.,
V. CONCLUSION
The Supreme Court has acknowledged that there is overlap among the subsections of § 523(a), "but that overlap appears inevitable."
*601Husky Int'l Elecs., Inc. v. Ritz, --- U.S. ----,
In sum, the Debtor, through his execution of the Guaranty and his conduct associated with obtaining the loan for Blackwolf, is liable to DMM in the following amounts, all of which constitute nondischargeable obligations: (1) the unpaid principal amount of $150,000.00 owed under the Note; (2) accrued pre-judgment unpaid interest of $50,503.68 owed under the Note as of the date set forth below; (3) attorneys' fees and expenses of $19,031.79; and (4) post-judgment interest of 1.97% per annum (accruing from the date set forth below until all of the above referenced amounts are paid in full).
A judgment consistent with these Findings of Fact and Conclusions of Law will be entered on the docket simultaneously herewith.
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