In re: Mark J. Escoto

FILED
MAR 21 2017
1 NOT FOR PUBLICATION
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
2 OF THE NINTH CIRCUIT
3 UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT
4
5 In re: ) BAP No. NV-16-1211-LJuKu
)
6 MARK J. ESCOTO, ) Bk. No. 2:13-bk-10096-mkn
)
7 Debtor. ) Adv. No. 2:13-ap-01058-mkn
______________________________)
8 )
ROBERT G. HILLSMAN, )
9 )
Appellant, )
10 )
v. ) MEMORANDUM*
11 )
MARK J. ESCOTO, )
12 )
Appellee. )
13 ______________________________)
14 Argued and Submitted on February 24, 2017
at Las Vegas, Nevada
15
Filed - March 21, 2017
16
Appeal from the United States Bankruptcy Court
17 for the District of Nevada
18 Honorable Mike K. Nakagawa, Bankruptcy Judge, Presiding
_________________________
19
Appearances: Candace Carlyon of Morris Polich & Purdy LLP
20 argued for Appellant Robert G. Hillsman; Samuel A.
Schwartz of The Schwartz Law Firm argued for
21 Appellee Mark J. Escoto.
_________________________
22
Before: LAFFERTY, JURY, and KURTZ, Bankruptcy Judges.
23
24
25
26 *
This disposition is not appropriate for publication.
27 Although it may be cited for whatever persuasive value it may
have (see Fed. R. App. P. 32.1), it has no precedential value.
28 See 9th Cir. BAP Rule 8024-1.
1 INTRODUCTION
2 This is the second appeal arising from this adversary
3 proceeding to determine whether Debtor Mark J. Escoto’s debt to
4 Appellant Robert G. Hillsman is dischargeable.
5 Hillsman loaned $200,000 to Escoto to fund Escoto’s
6 litigation against the contractor and others who built Escoto’s
7 home; the loan was due on demand, in three years, or upon
8 settlement of the litigation, whichever came first. Escoto
9 failed to notify Hillsman of settlements that occurred within the
10 three-year loan term; when the initial term expired Escoto
11 requested, and Hillsman granted, a one-year extension of the loan
12 term.
13 After Escoto filed his chapter 71 case, Hillsman sought a
14 declaration of nondischargeability under § 523(a)(2)(A) of the
15 amounts due under the note based on Escoto’s alleged fraud in
16 procuring an extension of the loan term. After trial, the
17 bankruptcy court found that Hillsman had proven all the elements
18 of a nondischargeability claim under § 523(a)(2)(A) except
19 proximate cause because Hillsman had not shown that he had
20 valuable collection remedies available when he consented to the
21 extension and that those remedies had lost value. Hillsman
22 appealed to this Panel, which concluded that Escoto’s fraudulent
23 nondisclosure of the settlements resulted in an extension of
24 credit for purposes of § 523(a)(2); thus, the Panel found that
25 the bankruptcy court erred in focusing its proximate cause
26
1
27 Unless otherwise indicated, all chapter and section
references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
28 “NRS” references are to the Nevada Revised Statutes.
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1 analysis on the period from and after the date Hillsman granted
2 the extension. The Panel remanded for the bankruptcy court to
3 make additional or amended findings, focusing on the period from
4 and after the settlements.
5 Upon remand, after further briefing and a hearing, the
6 bankruptcy court issued a supplemental memorandum decision
7 finding that, upon reexamining the evidence, Hillsman had still
8 failed to meet his burden of proof to show proximate cause
9 because he failed to establish the amount by which any available
10 remedies lost value. We AFFIRM.
11 FACTS2
12 In July 2005, Escoto and his non-debtor spouse, Shirley A.
13 Escoto,3 filed suit in state court against a contractor,
14 Christopher Homes, and certain subcontractors for claims arising
15 out of construction defects in building their home. While the
16 lawsuit was pending, Escoto asked Hillsman, a friend and dental
17 patient, for a loan to fund the litigation.
18 In March 2008, Hillsman lent Escoto $200,000. The debt is
19 evidenced by a demand promissory note bearing interest at seven
20 percent per annum and providing for interest-only payments during
21 the term of the note. The note was due on demand, in three years
22 (March 11, 2011), or upon settlement of the lawsuit “by and
23 between [the Escotos] and the entity known as CHRISTOPHER HOMES
24 et al.” The note referenced Escoto granting security interests
25
26 2
In this factual recitation, we borrow heavily from the
27 prior Panel’s statement of facts in BAP No. NV-14-1358-KuDJu.
28 3
The Escotos are now divorced.
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1 in his dental practice, office building, and other personal
2 property, but Hillsman never took steps to perfect those security
3 interests. The note granted Hillsman “the right to remove any
4 and all possessions of Escoto et al[.] to be sold as necessary to
5 recover debt in full and to effect garnishment of any paycheck,
6 settlement monies, or other assets without the need of a court
7 order regarding same.”
8 In July 2008, Escoto settled with all defendants in the
9 construction defect litigation except for the plumbing
10 subcontractor. This $350,000 settlement was approved by the
11 state court; Escoto received net proceeds of $118,000. In
12 October 2009, Escoto settled with the remaining defendant for an
13 additional $350,000. The state court approved that settlement in
14 November 2009, and in February 2010 Escoto received net proceeds
15 of $142,000. Despite numerous and extended interactions between
16 the friends, Escoto did not tell Hillsman about either
17 settlement.
18 Escoto failed to make several interest payments required by
19 the note. In March 2011, when the note came due, Escoto
20 requested an extension of the loan term. Unaware of the
21 settlements, Hillsman agreed to the request, and the parties
22 executed an agreement extending the repayment period for one year
23 but otherwise leaving the terms of the demand promissory note
24 unchanged. Escoto’s delinquency under the terms of the note
25 continued. In August 2012 the two friends met, and Escoto
26 reaffirmed his commitment to repay the note but once again did
27 not disclose the settlements.
28 Approximately five months later, on January 4, 2013, Escoto
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1 filed a chapter 7 petition. After receiving notice of the
2 petition, Hillsman contacted an attorney and finally learned that
3 Escoto had settled the construction defect litigation four years
4 earlier.
5 After trial, the bankruptcy court found that Hillsman had
6 proved all elements necessary to establish the debt as
7 nondischargeable with the exception of proximate cause.
8 Specifically, the bankruptcy court ruled that Hillsman failed to
9 demonstrate that he possessed valuable collection remedies on the
10 date of the extension and that those remedies lost value during
11 the renewal period.
12 In coming to this conclusion, the bankruptcy court examined
13 the value of the potential remedies available to Hillsman at the
14 time he agreed to the extension. Noting that there was no equity
15 in the pledged business properties even if Hillsman had perfected
16 his liens, the bankruptcy court discounted Hillsman’s remedies as
17 a secured creditor. As an unsecured creditor, Hillsman could
18 pursue informal collection remedies such as telephone calls and
19 correspondence, but the bankruptcy court found little value in
20 these activities. The court then considered Hillsman’s ability
21 to obtain a judgment and found that he failed (1) to identify
22 assets available to satisfy a judgment that Escoto could not
23 exempt under state law; and (2) to demonstrate how the value of
24 his status as a judgment creditor declined over the extension
25 period.
26 Finally, the bankruptcy court considered Hillsman’s
27 equitable remedies in the form of a constructive trust created to
28 recognize Hillsman’s interest in the settlement proceeds. The
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1 court found such equitable remedies unavailable as the record
2 indicated that Escoto had disposed of the proceeds prior to the
3 extension date.
4 The bankruptcy court entered judgment in favor of Escoto on
5 July 3, 2014, and Hillsman appealed to this Panel (BAP No.
6 NV-14-1358-KuDJu). In its memorandum decision issued May 15,
7 2015, the Panel held that the bankruptcy court had applied the
8 correct legal standard for determining proximate cause and that
9 the bankruptcy court’s finding that Hillsman failed to establish
10 proximate cause was not clearly erroneous. However, the Panel
11 found that the bankruptcy court erred by limiting its proximate
12 cause analysis to the date of the extension agreement in March
13 2011. Instead, the Panel held that Escoto’s concealment of the
14 settlements resulted in an extension of credit for purposes of
15 § 523(a)(2). Thus, the Panel vacated the judgment and remanded
16 for additional findings. The Panel instructed:
17 In light of our holding that Escoto effectively
obtained an extension of credit when he failed to
18 disclose the settlement and thereby prevented Hillsman
from immediately demanding repayment in accordance with
19 the terms of the note, on remand, the bankruptcy court
will need to focus on this earlier time period and make
20 additional or amended findings in order to determine
whether all of the § 523(a)(2)(A) elements were
21 satisfied.4
22 In response to the Panel’s mandate, Hillsman moved for entry
23 of findings, conclusions and judgment on the record or to reopen
24 discovery and set a new trial date. Escoto opposed reopening the
25 record. On July 1, 2016, the bankruptcy court granted the motion
26
4
27 The previous Panel did not specify whether the relevant
time period was the first settlement in July 2008 or the second
28 settlement in October 2009, or both.
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1 for entry of additional or amended findings and denied the
2 alternative request to reopen discovery and set a new trial date.
3 The bankruptcy court concurrently issued a Supplemental
4 Memorandum Decision After Trial (“Supplemental Memorandum”)
5 finding that, upon reexamining the evidence in light of the BAP’s
6 memorandum decision, Hillsman had still failed to meet his burden
7 of proof to show proximate cause because he failed to establish
8 the amount by which any remedies lost value. The bankruptcy
9 court also entered judgment in favor of Escoto.
10 Hillsman timely appealed.
11 JURISDICTION
12 The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
13 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.
14 § 158.
15 ISSUE
16 Did the bankruptcy court err in concluding that Hillsman
17 failed to meet his burden of proof regarding proximate cause?
18 STANDARDS OF REVIEW
19 We review the bankruptcy court’s findings of fact for clear
20 error and its conclusions of law de novo. Oney v. Weinberg
21 (In re Weinberg), 410 B.R. 19, 28 (9th Cir. BAP 2009), aff’d,
22 407 F. Appx. 176 (9th Cir. 2010).
23 A bankruptcy court’s interpretation of a contract is a
24 question of law that we review de novo. Estate of Short v. Payne
25 (In re Payne), 323 B.R. 723, 727 (9th Cir. BAP 2005).
26 A bankruptcy court’s findings regarding proximate cause
27 under § 523(a)(2)(A) may be reversed only if clearly erroneous.
28 Britton v. Price (In re Britton), 950 F.2d 602, 604 (9th Cir.
-7-
1 1991). We do not consider a finding of fact clearly erroneous
2 unless the finding is “illogical, implausible, or without support
3 in the record.” Retz v. Samson (In re Retz), 606 F.3d 1189, 1196
4 (9th Cir. 2010).
5 DISCUSSION
6 To prove causation on a § 523(a)(2)(A) claim based on an
7 extension, a renewal, or a refinance, a creditor must show “that
8 it had valuable collection remedies at the time it agreed to
9 renew, and that such remedies lost value during the renewal
10 period.” Siriani v. Nw. Nat’l Ins. Co. of Milwaukee, Wis.
11 (In re Siriani), 967 F.2d 302, 306 (9th Cir. 1992). See also
12 Cho Hung Bank v. Kim (In re Kim), 163 B.R. 157, 161 (9th Cir. BAP
13 1994), aff’d, 62 F.3d 1511 (9th Cir. 1995).
14 To comply with Siriani and demonstrate that the extension
15 proximately caused his loss, Hillsman needed to show: (1) that he
16 possessed valuable collection remedies at the time the loan term
17 was extended (here, at the time of settlement(s)); and (2) a
18 depreciation in the value of those remedies during the extended
19 repayment period. See In re Kim, 163 B.R. at 161.5 On remand,
20 the bankruptcy court found that although Hillsman had remedies
21 available to him at the time of the settlements, he had not
22 established the value of those remedies or the amount by which
23 they diminished in value during the relevant time period.
24
25
5
26 Hillsman argues that Siriani and Kim erroneously impose an
additional burden on a plaintiff which is not part of the plain
27 language of § 523(a)(2) and urges, if this matter goes before the
Ninth Circuit Court of Appeals, that those cases should be
28 overruled.
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1 1. The Promissory Note
2 The bankruptcy court first examined the language of the
3 promissory note:
4 FOR VALUE RECEIVED, the undersigned, Mark J. Escoto and
Shirley A. Escoto attaching by ownership the Pledged
5 Building and all attachmnets [sic] owned by the
Nevada-listed LLC known as JAEMSS, LLC (a Nevada
6 Limited-Liability Company (the “Borrower”), hereby
acknowledges itself indebted to Robert G. Hillsman a
7 single man (the “Lender”) and promises to pay ON DEMAND
to or to the order of the Lender at the end of a three
8 year period from the date of signatures affixed
(otherwise known as a BALLOON PAYMENT for the SUM IN
9 TOTAL of $200,00.00 [sic] or upon settlement of the
lawsuit filed by and between the above-listed
10 Borrowers, the “Escoto’s” joint and severably- [sic]
and the entity known as CHRISTOPHER HOMES et al. . . .
11
. . . .
12
. . . . Parties do hereby further agree that Mark
13 Escoto states as Owner and Manager of JAEMSS,
LLC-Nevada, Escoto states and by this note pledges all
14 equity in the LLC including his Dental Practice and the
Building housing same . . . as collateral and security
15 for this note, and furthermore that he will produce
documents indicating that said assets are attached only
16 by his lending institution as the first holder of lien
and that at no time shall Escoto et al place any
17 indivual [sic] or entity ahead of Hillsman who by this
note assumes second position towards the listed assets.
18
. . .
19
. . . Escoto et al further pledge any and all personal
20 possessions holdings and items of value as security and
collateral for payment of this note and by this note
21 grant Lender-Hillsman the right to remove any and all
possessions of Escoto et al to be sold as necessary to
22 recover debt in full and to effect garnishment of any
paycheck, settlement monies, or other assets without
23 the need of a court order regarding the same. . . .
24 The bankruptcy court found ambiguities in the note, which it
25 construed against Hillsman as the drafter. See Dickenson v.
26 State Dept. of Wildlife, 110 Nev. 934, 937, 877 P.2d 1059, 1061
27 (Nev. 1994) (ambiguous contract construed against the drafter).
28 Hillsman argues that the bankruptcy court erred in construing the
-9-
1 note against him, citing Ninth Circuit case law holding that
2 ambiguous contracts need not be construed against the drafter
3 when the parties to the contract are of equal strength and
4 bargaining at arms’ length. Eley v. Boeing Co., 945 F.2d 276,
5 280 (9th Cir. 1991); Turner v. United States, 875 F. Supp. 1430,
6 1435 (D. Nev. 1995), aff’d sub nom. Turner v. U.S. Through U.S.
7 Dept of Agric., Farmers Home Admin., 91 F.3d 1274 (9th Cir.
8 1996). However, both of these cases applied federal law, not
9 Nevada state law, in construing the contracts at issue (an ERISA
10 contract resulting from a collective bargaining agreement and a
11 settlement agreement where the United States was a party);
12 Hillsman has cited no Nevada Supreme Court cases subsequent to
13 Dickenson holding that contracts need not be construed against
14 the drafter when the parties are of equal bargaining power.
15 Therefore, the bankruptcy court did not err in construing the
16 note against Hillsman.
17 2. The bankruptcy court did not err in concluding that the
18 relevant time for its analysis was the time of the
19 second settlement in late 2009.
20 One ambiguity involved the provision that the note was due
21 in three years or “upon settlement of the lawsuit . . . between .
22 . . the [Escotos] . . . and the entity known as CHRISTOPHER HOMES
23 et al.” No witness had testified at trial as to whether this
24 language referred to the settlement with Christopher Homes or
25 with all defendants in the lawsuit; thus the bankruptcy court
26 construed the language against Hillsman in concluding that the
27 language referred to the second settlement date in 2009.
28 Hillsman argues that the bankruptcy court’s interpretation
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1 of these provisions was erroneous. He contends that the note
2 matured at the time of the first settlement with Christopher
3 Homes because the note specifically refers to Christopher Homes
4 and because the litigation timeline the Escotos provided to
5 Hillsman before he agreed to loan the money referenced only
6 Christopher Homes. Hillsman also argues that the initial draft
7 of the note provided that it would be due either on March 1, 2011
8 or at the time of a final judgment in the litigation. The
9 parties replaced this language with reference to a settlement,
10 which Hillsman argues indicates an agreement that no final
11 judgment needed to be entered to trigger maturity. As noted,
12 however, the bankruptcy court did not err in construing the note
13 against Hillsman.
14 Importantly, the bankruptcy court also concluded that even
15 if it had examined remedies available at the time of the first
16 settlement with Christopher Homes in 2008, the type and value of
17 the collection remedies available at that time were never proven
18 at trial either. As will be discussed, the evidence supports
19 this conclusion.
20 3. The bankruptcy court did not err in finding that
21 Hillsman did not show that he had valuable collection
22 remedies as a secured creditor.
23 The bankruptcy court found that the promissory note
24 contained a pledge of the equity in Escoto’s dental practice and
25 building as well as a pledge of Escoto’s personal property but
26 that the pledge of the business assets was at best a second
27 position lien because the language of the note indicated Hillsman
28 was in second position. But because no evidence was provided as
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1 to the amount of any senior liens on that collateral, the
2 bankruptcy court also found that it was impossible to determine
3 the value of any collection remedy against those assets. We find
4 no error in this analysis.
5 As to the pledge of “any and all personal possessions
6 holdings and items of value,” the bankruptcy court concluded that
7 this pledge encompassed only tangible items and not intangible
8 interests such as legal claims and proceeds thereof (i.e., the
9 settlement proceeds). The bankruptcy court noted that the
10 language granting Hillsman the “right to remove any and all
11 possessions of Escoto et al to be sold as necessary to recover
12 the debt” was consistent with a pledge of tangible assets. The
13 note also granted Hillsman the right to removal of any and all
14 possessions “to effect garnishment of any paycheck, settlement
15 monies, or other assets without the need of a court order
16 regarding the same.” The bankruptcy court noted that this latter
17 provision was consistent with a pledge of tangible assets and a
18 self-help remedy with respect to those assets, but that it was
19 inconsistent with a garnishment remedy against interests held by
20 third parties.
21 Importantly, the bankruptcy court found that the note did
22 not contain a pledge of the settlement proceeds to Hillsman.
23 Hillsman argues that this finding was clearly erroneous because
24 in the parties’ Joint Pretrial Memorandum, they stipulated that
25 the note “contained a pledge of the proceeds of the settlement of
26 the State Court Action” and that “Escoto represented that he
27 would repay the Hillsman Loan with the proceeds of the State
28 Court Action.” And both Hillsman and Escoto testified at trial
-12-
1 that the settlement proceeds were pledged to Hillsman. The
2 bankruptcy court did not reference these stipulated facts or
3 testimony in its Supplemental Memorandum. However, we see no
4 error in the bankruptcy court’s interpretation of the evidence,
5 the stipulation and testimony notwithstanding, or in its
6 conclusion, which was based on the plain language of the note.
7 Hillsman’s argument that the bankruptcy court was
8 essentially bound by the assertions of the stipulation (and the
9 admissions in the testimony) that the note included a pledge of
10 the settlement proceeds is misguided in two respects. First, it
11 ignores the mandate from this Panel after the first appeal;
12 second, it would effectively require the bankruptcy court to
13 inappropriately cede both the “fact finding” and the “law
14 concluding” judicial functions to the parties.
15 In the first appeal, the Panel determined that there was no
16 error assignable to the bankruptcy court’s findings of fact or
17 generally to the legal standard the court applied with respect to
18 a showing of proximate cause for Hillsman’s loss. However, the
19 Panel determined that there was error in the timing of the
20 bankruptcy court’s application of the standard in these
21 circumstances and thus remanded for the bankruptcy court to
22 resolve one question: did Hillsman have valuable collection
23 rights as of the settlement date that decreased in value?
24 The question posed to the bankruptcy court on remand was not
25 an abstract hypothetical; neither should the answer, nor the
26 means used to arrive at the answer, be abstract. Whether a party
27 possessed valuable collection rights as of a particular point in
28 time is a highly specific, “real world” question that requires
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1 the finder of fact to review the evidence and determine, in the
2 consensual lien context, (a) whether a security interest was
3 granted, (b) whether it was enforceable, and (c) whether in light
4 of all of the pertinent circumstances, enforcement of the
5 interest would have yielded a material recovery.
6 Measured against these inquiries, the stipulation falls
7 woefully short. In the first place, it purports to answer only
8 the first of the relevant questions: was a security interest
9 actually granted? And the stipulation “answers” it in the most
10 non-specific, non-factual, entirely conclusory manner imaginable:
11 “The Note contained a pledge of the proceeds of the settlement of
12 the State Court Action.” The stipulation does not identify a
13 provision or particular language in the note that granted such an
14 interest or provide any specific factual support for its
15 conclusion. Indeed, what it really appears to say is “we think
16 that the note had the following effect, or we intended that it
17 would have that effect.” So viewed, the statement that the note
18 contained a pledge of the settlement proceeds is not an agreed
19 finding of fact at all; rather, it is a stipulated conclusion of
20 law which, if permitted, would remove the adjudicative function
21 from the court on the only material question posed on remand.
22 This is a completely inappropriate result.
23 The stipulated fact does not address, let alone resolve
24 favorably, whether the security interest was enforceable--which
25 would require at a minimum a showing that a judicial officer
26 would have agreed that the note contained a pledge of the
27 settlement proceeds--and whether material recoveries might have
28 been available. And clearly, once the bankruptcy court here
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1 posed those questions, it made factual findings appropriate to
2 the evidence presented. The bankruptcy court found, for example,
3 that the note’s only reference to the settlement proceeds is the
4 grant to Hillsman of what appears to be a self-help remedy to
5 “effect garnishment of any paycheck, settlement monies, or other
6 assets without the need of a court order.”
7 As counsel for Hillsman conceded at oral argument on this
8 appeal, the language of the note concerning a pledge of
9 settlement proceeds was at best “ambiguous.” Frankly, we believe
10 it not particularly ambiguous at all, for the many reasons cited
11 by the bankruptcy court in its disposition of this matter--and
12 that is the point: once the bankruptcy court moved past the
13 barriers imposed by the stipulated facts, as we believe it did
14 appropriately, and reviewed the evidentiary basis for the claim
15 that the note provided a valuable collection right, i.e., an
16 enforceable consensual lien in the settlement proceeds, it is
17 impossible to conclude, on these facts, that its interpretation
18 of the note was erroneous.
19 Hillsman nonetheless contends that the “pledge” of
20 settlement proceeds was enforceable under Nevada law, citing May
21 v. G.M.B., Inc., 105 Nev. 446, 451-52, 778 P.2d 424, 427-28
22 (1989) (holding that a party’s failure to perfect its security
23 interest in a motor vehicle did not impact the enforceability of
24 the security agreement as between the parties). However, because
25 the note contained no language granting Hillsman a security
26 interest in the proceeds, May does not help Hillsman. Under
27 Nevada law, attachment occurs when the debtor has signed a
28 security agreement that contains a description of the collateral,
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1 value has been given, and debtor has rights in the collateral.
2 Id. at 452, 778 P.2d at 427-28 (citing NRS § 104.9203). In the
3 absence of language granting a security interest in the proceeds,
4 no attachment occurred, and thus no enforceable security
5 agreement was formed.
6 Even if one could cobble together in the language of the
7 note a grant of a security interest, such interest was admittedly
8 unperfected. Even if such interest were enforceable between the
9 parties, it would have been subordinate to any properly perfected
10 security interest or potential lien creditors. Neither the
11 stipulated “fact” that the note contained a pledge of the
12 settlement proceeds nor any evidence presented by Hillsman
13 addressed, let alone resolved favorably for Hillsman, these
14 difficult and material factual issues.
15 Accordingly, the parties’ 2014 stipulation in this
16 litigation is immaterial to whether the note actually granted
17 Hillsman a security interest that he could have enforced in 2008
18 or 2009. We find no error in the bankruptcy court’s findings and
19 conclusions on these points.
20 4. The bankruptcy court did not err in finding that
21 Hillsman failed to show that he had valuable remedies
22 available as a judgment creditor.
23 The bankruptcy court found that at the time of the
24 settlements, Hillsman could have sued on the note and obtained a
25 judgment for the full amount, and that if he established that his
26 legal remedies were inadequate, he could have asked the court to
27 impose equitable remedies such as a constructive trust or
28 equitable lien. Additionally, the bankruptcy court agreed with
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1 Hillsman that he could have asked for prejudgment remedies such
2 as a writ of possession, a temporary restraining order, or a
3 prejudgment writ of attachment.
4 However, the bankruptcy court found that regardless of what
5 remedies may have been theoretically available to Hillsman, he
6 had not established the facts necessary to determine that those
7 remedies might have been imposed; to obtain a writ of possession
8 or a temporary restraining order, Hillsman would have been
9 required to show that he was entitled to possession. NRS
10 §§ 31.859, 31.853, 31.850. To obtain a writ of attachment after
11 notice, Hillsman would have had to show that the note was not
12 secured by a pledge of real or personal property, or if it was,
13 that the collateral was insufficient to secure the sum due; to
14 obtain such a writ without notice, Hillsman would have had to
15 show that Escoto was disposing of or concealing assets, and his
16 remaining assets were insufficient to satisfy Hillsman’s claim.
17 NRS §§ 31.013(1)(a) and 31.017(5). Hillsman did not demonstrate
18 that he could have made the required showings.
19 The bankruptcy court also found that Hillsman had failed to
20 establish the value of any of those remedies at the relevant
21 times or the amount by which they lost value. At trial, the only
22 documentary evidence of Escoto’s finances was Escoto’s Financial
23 Disclosure Form filed in his marital dissolution proceeding on
24 December 27, 2012, and Escoto’s schedules and statements filed in
25 the chapter 7 case on January 4, 2013. However, Escoto testified
26 that the information on the Financial Disclosure Form was not
27 correct. More importantly, no documentary evidence was presented
28 that established the Escotos’ income, expenses, and liabilities
-17-
1 at the time of the settlements in 2008 and 2009. The Escotos
2 also testified regarding their financial condition, but no
3 documentary evidence was presented to corroborate that testimony
4 and, again, the oral testimony did not establish the Escotos’
5 financial condition during the relevant time period.
6 As for the settlement proceeds, Escoto testified that he
7 received $118,000 from the first settlement at the end of 2008,
8 and that those funds were used to pay for legal fees and experts
9 to continue the litigation against the plumbing contractor; the
10 evidence also showed that Escoto received net proceeds of
11 $142,000 sometime after the state court entered a distribution
12 order in February 2010. However, no documentary evidence was
13 produced pinpointing when the funds came into Escoto’s possession
14 or what happened to those funds.
15 Ms. Escoto testified that before the couple’s first divorce
16 in 2009,6 there was $370,000 in their joint checking account;
17 after the couple separated, Ms. Escoto attempted to make a
18 withdrawal from that account and was informed that Escoto had
19 withdrawn all but $19.70. Ms. Escoto’s testimony was vague as to
20 the timing of the withdrawal; she testified only that it occurred
21 sometime after September 2009. Again, no documentary evidence
22 was presented to clarify the time period when the joint account
23 had contained $370,000 or when those funds were withdrawn.
24 Hillsman also points out that Escoto’s bankruptcy schedules
25 show that Escoto received wages of $160,000 in 2011, and that as
26
6
27 The couple’s first divorce in 2009 was set aside as having
been fraudulently obtained; thereafter, the couple divorced a
28 second time.
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1 of the petition date Escoto was earning over $19,000 per month.
2 Hillsman also points to the reported income of Escoto’s
3 businesses in 2012 and 2013. Theoretically, had Hillsman
4 obtained a judgment, he may have been able to garnish that
5 income, but Hillsman provided no evidence of how much of those
6 funds would have been available. More importantly, this
7 information alone does not demonstrate that Hillsman had valuable
8 collection remedies available at the time of either settlement.
9 In its prior decision, this Panel stated:
10 Identifying funds to which Escoto may have had access
is insufficient. Siriani requires a creditor to
11 demonstrate the existence of valuable collection
remedies at a specific point in time. By simply
12 pointing to evidence of certain funds, Hillsman did not
necessarily place these funds in Escoto’s possession at
13 the time the extension agreement was entered into or
during the extension period. For instance, Ms. Escoto
14 testified that Escoto withdrew $370,000 from the
couple’s joint bank account on an unidentified date.
15 Even if the Panel assumes her testimony is true,
Hillsman provided no evidence that Escoto possessed
16 these funds at any time relevant to the extension
agreement.
17
18 Finally, Hillsman argues that the mere fact that the “assets
19 listed above” were gone as of the petition date establishes loss,
20 citing Ojeda v. Goldberg, 599 F.3d 712 (7th Cir. 2010). It is
21 not clear exactly what assets Hillsman refers to; presumably it
22 is the wage and business income alluded to above. Again, this
23 argument was rejected by the prior Panel:
24 A second defect with Hillsman’s argument is that
placing assets or funds in Escoto’s possession at the
25 relevant time does not end the proximate cause
analysis. In addition to identifying the existence of
26 remedies, Siriani requires a creditor to show a
reduction in the value of such remedies during a
27 specific period of time. Assuming Escoto possessed
funds or available assets at the requisite point in
28 time, Hillsman did not present any evidence that these
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1 funds or assets were dissipated during the extension
period.
2
3 CONCLUSION
4 For all of these reasons, we find no error in the bankruptcy
5 court’s finding that Hillsman failed to meet his burden of
6 showing that he had valuable collection remedies available at the
7 time of settlement and that those remedies lost value.
8 Accordingly, we AFFIRM.
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