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Peoples Bank of Paragould, Arkansas v. Swetnam

April 5, 2007

PEOPLES BANK OF PARAGOULD, ARKANSAS PLAINTIFF/ APPELLANT
v.
LARRY SWETNAM AND VIRGINIA SWETNAM DEFENDANTS/APPELLEES



The opinion of the court was delivered by: Wm. R. Wilson, Jr. United States District Judge

ORDER

This is an appeal from a final order of the United States Bankruptcy Court of the Eastern District, Batesville Division.*fn1 Appellants, Peoples Bank of Paragould ("PBP"), filed this appeal from an order denying an exception to a discharge of the debts of Appellee, Larry Swetnam ("Swetnam"). PBP filed its brief,*fn2 to which Swetnam responded,*fn3 and PBP replied.*fn4

I. Background

Swetnam is an auctioneer who agreed to auction cars that had been repossessed by PBP. Swetnam earned over $90,000.00 from the auction. Swetnam deposited this money in a separate bank account, and then wrote three checks to PBP. The checks bounced, and PBP never recovered its money.

PBP challenged Swetnam's bankruptcy petition and argued that the debt owed to it from the auction met two exceptions to discharge: (1) Swetnam was a fiduciary at the time the debt arose; and (2) Swetnam is guilty of fraud.*fn5 After a hearing, the Bankruptcy Court found that there was insufficient evidence of fraud and Swetnam was not a fiduciary.

II. Standard of Review

The Bankruptcy Court's factual findings are reviewed for clear error and its conclusions of law are reviewed de novo.*fn6 Subsidiary findings of fact on which the legal conclusion is based are reviewed for clear error.*fn7

A finding that a debtor is not a fiduciary within the meaning of 11 U.S.C. § 523(a)(4) is reviewed de novo because it is a question of law.*fn8 A finding that there is insufficient evidence of fraud is reviewed for clear error.*fn9

III. Authority

A. Burden of Proof

The party seeking to establish an exception to the discharge of a debt bears the burden of proof.*fn10 The burden of proof required for establishing an exception to discharge is a preponderance of the evidence.*fn11 The statutory exceptions to discharge in bankruptcy are narrowly construed.*fn12

B. Fraud

To establish a fraud exception to dischargeability, PBP must prove the following factors:

(1) Swetnam obtained money from PBP through representations which he either knew to be false, or he made the representation with reckless disregard for the truth; (2) Swetnam intended to deceive PBP; (3) PBP relied on Swetnam's ...


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