BRIAN T. SULLIVAN, Plaintiff-Appellant,
MICHELE A. GLENN and MICHAEL R. GLENN, JR., Defendants-Appellees
Argued February 10, 2015.
Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 14 C 329--James B. Zagel, Judge.
For In the Matter of: MICHAEL R. GLENN, JR., Debtor - Appellee: Chester H. Foster Jr., Attorney, Foster Legal Services Pllc, Mokena, IL.
For Michele A. Glenn, Debtor - Appellee: Chester H. Foster Jr., Attorney, Foster Legal Services Pllc, Mokena, IL.
For Brian Thomas Sullivan, Appellant: Brian Thomas Sullivan, Attorney, Chicago, IL.
Before POSNER, MANION, and TINDER, Circuit Judges.
Posner, Circuit Judge.
This appeal presents a pair of questions of bankruptcy law: whether, if a debt is the result of fraud, the debtor can discharge the debt in bankruptcy if he was not complicit in the fraud; and whether he can discharge the debt even if the fraud was created by his agent, provided, again, that the debtor himself was not complicit in it.
The defendants, the Glenns, were in the real estate development business. In 2007 they encountered financial difficulties and asked a loan broker named Karen Chung to try to get them a short-term loan of $250,000. She asked a lawyer named Brian Sullivan, of whom she was a friend and an occasional client, whether he'd be interested in making such a loan. He was, and agreed to lend the Glenns the $250,000 repayable in two to three weeks with interest of $5,000 per week. The Glenns needed the money for more than two weeks, but Chung told them and Sullivan that a bank had agreed to give the Glenns a $1 million line of credit, though it would take
a few weeks for the line of credit to become available--hence the need for the " bridge" loan from Sullivan, which the Glenns would easily be able to repay as soon as they could draw on the line of credit.
At the meeting in the fall of 2007 at which these arrangements were discussed, Sullivan asked about the current status of the bank loan. One of Chung's employees stepped out of the room, ostensibly to call the bank. When he returned he told Sullivan that the bank had indeed approved the $1 million line of credit. In fact, as Chung well knew, her employee hadn't called the bank and the line of credit had not been (and never was) approved--indeed it had never been applied for. Sullivan was left in the dark. But before the meeting broke up he asked and eventually received promissory notes from the Glenns and from Chung, committing them personally to repay his $250,000 loan if repayment was not made from the bank's line of credit.
The loan was never repaid. Chung declared bankruptcy. Sullivan filed an adversary complaint against her in the bankruptcy proceeding, claiming that she was not entitled to discharge the debt to him created by her promissory note because it was her fraudulent assurance that the bank line of credit had been approved that had induced him to make the $250,000 loan secured by promissory notes including Chung's. The Bankruptcy Code bars discharge of an individual debtor for a debt " obtained by ... false pretenses, a ...