Bankruptcy Beat: Former NFL Player Defeats Fraud Allegations Which Results In Discharge Of Debt

by Pullman & Comley, LLC

On March 31, 2015, the Honorable Albert S. Dabrowski issued a decision in Hamrah v. Coulette (In re Coulette), Adv. Pro. No. 13-2039, concerning the issue of whether an obligation created by a failed business investment gives rise to a non-dischargeable debt in a Chapter 7 bankruptcy case filed by a former NFL athlete.  Unlike the recently rendered results in “deflate-gate,” this decision came down in favor of the athlete.

Matthew Coulette, Jr. (the “Debtor”), a former professional football player, filed for Chapter 7 bankruptcy on June 17, 2013. Years before the filing, in February 2005, the Debtor and Darrell Wills (Wills) formed a sports marketing company named Athletes, Inc.   The Plaintiff, Hamid Hamrah (Plaintiff), was a bank mortgage loan officer that developed a niche market providing mortgages to professional athletes. The Debtor and Plaintiff met at a football event in 2005, a friendship ensued, and soon thereafter, the Debtor asked the Plaintiff whether he would be interested in investing in Athletes, Inc.  Plaintiff expressed interest, and the Debtor then emailed him information concerning Athletes, Inc. including its business plan.

On April 15, 2006, the Plaintiff lent Athletes, Inc. the sum of $50,000, and Athletes, Inc. gave the Plaintiff a promissory note.  Despite diligent efforts by its owners, Athletes, Inc. failed and its doors were closed a year later.   Plaintiff commenced an action in Missouri state court alleging breach of contract against Athlete’s Inc. and fraud against the individuals.  While the state court action was pending, the Debtor filed the bankruptcy case staying the state court proceedings.

In the context of the Chapter 7 case, on October 24, 2013, the Plaintiff commenced an adversary proceeding against the Debtor alleging that the Debtor owed him $52,700[1] and seeking a determination that such indebtedness was non-dischargeable pursuant to 11 U.S.C.§523(a)(2)(B),  11 U.S.C.§523(a)(2)(A) and 11 U.S.C.§523(a)(6).  As the Debtor had no personal liability on the promissory note, the Plaintiff had to establish that he was entitled to the damages he sought for fraud either under 11 U.S.C.§523(a)(2)(A) or 11 U.S.C.§523(a)(6).  Section 523(a)(2)(A) states that an individual shall not be discharged from a debt for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.  Section 523(a)(6) states that an individual shall not be discharged from a debt for wilful and malicious injury by the debtor to any other entity or to the property of another entity.

Based on the evidence presented, the Bankruptcy Court found that the Plaintiff did not meet his burden of proof as to several requisite elements of 11 U.S.C.§523(a)(2)(A) for an exception to discharge under that section, specifically, elements (2) a representation known to be false when made; (3) an intention to deceive; and (4) justifiable reliance.  The Bankruptcy Court noted that although the Debtor’s business partner, Wills, asserted certain representations in his profile contained in the business plan that may have been false or exaggerated, the Plaintiff provided no evidence that the Debtor intended to deceive the Plaintiff through the business plan.  The Bankruptcy Court also found that the Plaintiff failed to meet his burden of proving he justifiably relied on the information contained in or omitted from Wills’ profile in the business plan.  The Bankruptcy Court noted that the Plaintiff, as a mortgage loan officer, should have known the importance of and how to verify information in a loan application, and should have performed research on Wills or the Debtor on Google or otherwise and he did not.

The Bankruptcy Court also held that the Plaintiff conflated the requirements of 11 U.S.C.§523(a)(2)(A) and 11 U.S.C.§523(a)(6) and blatantly failed to meet his burden of proof as to any intent of the Debtor to injure the Plaintiff with regard to (a)(6).           

Interestingly, evidence was presented that the Debtor had made a prior false statement in a matter unrelated to Athletes, Inc. by significantly inflating his income in connection with a real estate rental application.  The Bankruptcy Court drew no inference adverse to the Debtor based on that false statement because of the Debtor’s demeanor and credibility on the stand at trial.

[1] Included in this amount was $2,700 for sanctions awarded in the state court.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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