After a trial, the bankruptcy court entered judgment against the debtor for knowingly making multiple false representations of material fact on which the plaintiffs relied, and the court excepted the judgment from discharge under §523(a)(2)(B) because the debtor made the representations with an intent to deceive.

The plaintiffs purchased a commercial cleaning business from the debtor in 2016 after performing their due diligence. The financial statements provided by the debtor painted a promising picture of a profitable business. However, the business was not as robust as the documents made it seem, because the debtor had overstated income and accounts receivable and failed to disclose certain liabilities. Other representations by the debtor regarding the company’s job list and the qualifications and legal status of the company’s employees were also false.

The court found that the plaintiffs established all the elements of fraudulent misrepresentation under Nebraska law, as the debtor knew his representations to be false. The court awarded the plaintiffs their benefit-of-the-bargain damages, but denied the consequential damages they requested in their brief because those damages were not properly pled under Fed. R. Civ. P. 9(g) or proven. The court also declined to award pre-judgment interest under Neb. Rev. Stat. § 45-104 because the plaintiffs’ right to payment arose not from an instrument in writing, but from the tort of fraudulent misrepresentation.

The court also excepted the judgment from discharge under §523(a)(2)(B) because the debtor obtained money by use of a materially false statement in writing pertaining to his business’s financial condition on which the plaintiffs reasonably relied and which the debtor made with the intent to deceive. The court ruled that the plaintiffs established intent to deceive by showing the debtor’s actual knowledge of the false financial statements and false representations in the asset purchase agreement, as well as his conduct after the sale in which he asked the company’s accounting staff to delete information and transfer funds out of company accounts to conceal such information and funds from the plaintiffs.

The court denied without prejudice a motion to compel production of documents, finding that the documents requested were covered by the attorney-client and work product privileges. This lawsuit is a contract dispute about insurance coverage. The defendant wants to see emails sent between non-attorney employees of the plaintiff concerning coverage for the loss at issue, but those emails are privileged because they discuss the advice and opinions of legal counsel. Work product privilege also applies because the plaintiff retained outside counsel for the dispute, indicating that an adversarial relationship existed.

The court denied a creditor’s motion to extend the deadline to file a complaint objecting to the debtors’ discharge or to determine the dischargeability of debts. The court declined to equitably toll the deadline because the creditor’s counsel did not act diligently to preserve the creditor’s rights, instead waiting until the afternoon of the last day to contact debtors’ counsel about extending the deadline, then encountering technical difficulties in attempting to file the agreed-upon motion. The court noted that equitable relief is granted sparingly, and is unlikely to be used to rescue a claimant who has failed to exercise due diligence in protecting his rights. Here, the court said, too many questions remain as to why creditor’s counsel did not act more promptly or take additional steps to protect the client’s rights.

The debtor and his parents filed separate adversary complaints seeking to subordinate or disallow the claims of a creditor and to rescind or reform deeds of trust in which that creditor is beneficiary. After a trial on the complaints, the court ruled that because the deeds of trust from the debtor’s parents contain a cross-collateralization clause not within the intent of the parties, the plaintiffs’ claims for reformation are partially granted to remove the clause. All other requested relief is denied.