U.S. Bankruptcy Court
Where plaintiff creditors have alleged that the defendant debtor made false representations on which they relied when they entered into a transaction to sell stock and receive a promissory note in the amount of $3.53 million, the plaintiffs have not sustained their burden of proof that the debt of $3.53 million is nondischargeable, as they have failed to show that the debt was traceable to actual fraud.
“This matter came before the Court on the Amended Complaint filed by the Plaintiffs, Jane Tortola, Joan Olszeski, and Judy Holcomb (collectively ‘Olszeskis’) against the defendant and debtor, James Gilmore Wilson. Pursuant to the Complaint, the Olszeskis seek a determination that the debt owed by Wilson to the Olszeskis in the principal amount of $3.53 million is nondischargeable pursuant to Section 523(a)(2) of the Code. For the reasons set forth below, the Court finds that the debt of Wilson to the Olszeskis is discharged since the Olszeskis have failed to sustain their burden of proof that it should be excepted from discharge. …
“… In the Amended Complaint, the Olszeskis asserted that the debt in the principal amount of $3.53 million is excepted from discharge under Section 523(a)(2) based on false representations, false pretenses, and actual fraud by Wilson. They allege that Wilson made false representations on which they relied when they entered into a transaction to sell stock and receive a promissory note dated May 31, 2006, in the amount of $3.53 million (‘Note’) as part of the compensation. In addition, they allege that the debt is nondischargeable based on subsequent actions by Wilson, including fraudulent conveyances that Wilson caused his related entities to make, which stymied their efforts to collect on the Note. …
“The Olszeskis failed to sustain their burden of proof to show that the debt of $3.53 million is nondischargeable under Section 523(a)(2). They have failed to show by a preponderance of the evidence that Wilson made specific representations to them at the time the Note was given, that he made the representations with the intent to deceive them, and that they were justified in relying on the representation. In addition, the Court finds that the Olszeskis failed to show that the debt of $3.53 million was traceable to actual fraud. Although the Olszeskis raise issues about their efforts to collect the debt, those actions occurred well after the original debt was incurred under the Note on May 31, 2006. The debt of $3.53 million was not ‘obtained by’ or traceable to actions taken years later. Even if the Olszeskis had asserted a debt arising from such later actions, the Olszeskis have failed to show by a preponderance of the evidence that Wilson engaged in transfers with the fraudulent intent to hinder, delay or defraud the Olszeskis.
“The Olszeskis failed to show that specific representations were made at the time the Note was given. …
“Moreover, however, there is no evidence that if any such representation was made, the Olszeskis relied on such a representation. …
“The Court also does not find that any postclosing transfers, even if proven, are a basis to find the debt of $3.53 million is nondischargeable. …
“Congress specifically limited the reach of Section 523(a)(2) of the Code to the initial debt, a refinancing, renewal, extension, or forbearance if obtained by false pretenses, false representations, or actual fraud. Section 523 does not include actions to collect a debt as one of the bases to find the original debt nondischargeable. The Olszeskis did not refinance, renew, extend or forbear from acting on the Note. They now seek to challenge Wilson’s actions to thwart their collection efforts. But such efforts do not turn the preexisting debt based on the Note that was dischargeable into a nondischargeable debt. …
“Even if the Olszeskis had asserted there was a separate debt based on alleged fraudulent transfers, the Olszeskis have failed to prove by a preponderance of the evidence that the transfers occurred. …
“The Olszeskis have also failed to show by a preponderance of the evidence that any such transfers were made by Wilson with the actual intent to hinder, delay or defraud the Olszeskis. …
“None of the other post-closing actions complained of by the Olszeskis are a basis for a finding that the debt of $3.53 million was nondischargeable. …
“The Olszeskis have also failed to sustain their burden of proof that such actions rose to the level of actual fraud. …
“For the foregoing reasons, the Court finds that the Olszeskis have failed to sustain their burden of proof that the debt of $3.53 million is nondischargeable under Section 523(a)(2) of the Code.
“The Court will enter a judgment in favor of Wilson consistent with this decision.”
In re: Wilson, James Gilmore (Lawyers Weekly No. 04-001-25) (20 pages) (Bostwick, J.) (Chapter 7 Case No. 17-12895-JEB; Adversary Proceeding No. 17-01140-JEB) (March 24, 2025).
Click here to read the full text of the opinion.