Virginia Lawyers Weekly//September 19, 2023
Virginia Lawyers Weekly//September 19, 2023//
Where a bank filed claims against a debtor based on personal guarantees he allegedly executed to secure multiple loans, and the debtor argued his signatures were forged on the guarantees, the bankruptcy court did not err in rejecting his arguments.
Byron David and Lisa David were married from 1991 to 2012. During that time, Mrs. David, along with her partners, was a part-owner of three real estate investment companies. From 2005 to 2012, Summit Community Bank loaned over three million dollars to the three real estate investment companies. The promissory notes for these loans were secured by deeds of trust on properties owned by the companies and by personal guarantees from the partners and their spouses, including David.
When the companies defaulted on the loans, Summit foreclosed on the properties under the deeds of trust, including the Davids’ personal residence. On Aug. 29, 2012, Mrs. David committed suicide.
Summit sued David for the deficiencies due on the promissory notes for the five loans. On July 10, 2018, David filed a Chapter 7 bankruptcy petition. Summit filed five claims against David’s estate. David argued that his signatures had been forged.
On Jan. 27, 2020, the bankruptcy court entered an order sustaining David’s objections to four claims and overruling his objections to a fifth claim. However the district court reversed the bankruptcy court’s ruling regarding the four sustained claims. Following remand, the bankruptcy court, on Sept. 30, 2022, overruled David’s omnibus objections.
David argues that the factual findings in the September 2022 bankruptcy opinion are clearly erroneous and cannot be reconciled with the factual findings in the January 2020 bankruptcy opinion. The court disagrees.
In its September 2022 opinion, the bankruptcy court recounted that Victoria Melby testified that the original signed allonges appeared to contain her signature and seal; testified that she “[u]sually” checked signatories’ identification before notarizing; testified that the signatory had to “appear physically in front of [her]” and recognized David as a customer of her bank but did not specifically recall David signing the exhibits.
The bankruptcy court noted that while it had previously found Melby’s testimony to be “tentative” in its January 2020 opinion, on review, it found that Melby’s testimony “did not indicate a lack of veracity, but instead indicated timidity.” This court finds that the factual findings and the credibility determinations of witnesses therein are supported by the record and contain no clear error.
David also argues that the bankruptcy court’s factual findings from its January 2020 opinion “are entitled to deference.” David cites no authority to support his contention that a bankruptcy court’s factual findings on remand must be “reconciled” with prior factual findings supporting a judgment that was reversed on appeal.
David argues that the bankruptcy court erred in its September 2022 opinion by (1) finding that David failed to present evidence sufficient to rebut the presumption of Summit’s claims’ validity; (2) considering David’s evidence “piecemeal” rather than as a whole and (3) misapplying Virginia law regarding notary acknowledgments The court finds that the bankruptcy court correctly applied relevant Virginia law, properly used the burden-shifting framework for proving the amount and validity of the claims and weighed the evidence in its September 2022 opinion.
David next argues that the bankruptcy court committed reversible error by (1) admitting into evidence Summit’s exhibits 4, 7, 34, 37 and 70 without authentication; (2) permitting Summit to introduce photocopies into evidence in violation of Federal Rules of Evidence 1002 and 1003 and (3) admitting into evidence the expert report and accompanying exhibits of Ronald Morris in violation of Federal Rules of Evidence 801 and 802.
To the extent David challenges the exhibits’ admission on authentication grounds, the bankruptcy court did not abuse its discretion in admitting exhibits 37 and 70. Although the bankruptcy court abused its discretion in admitting exhibits 34, 158 and 159, such errors were harmless.
The bankruptcy court found that because Summit had no reason to know at the time of signing or destruction of the guarantees that they may be relevant to future litigation, Summit had no duty to preserve the original guarantees. The bankruptcy court thus concluded that it could not “disallow the claims based on spoliation of the original guarantees.” The bankruptcy court did not err in so holding.
David v. Summit Community Bank, Case No. 1:22-cv-1154, Aug. 30, 2023. EDVA at Alexandria (Giles). VLW 023-3-522. 24 pp.