Knoxville Teachers Credit Union

SOUTHERN HERITAGE BANK, Plaintiff,

v.

LORETTA J. HART, Defendant.

No. 09-16854, Adversary Proceeding No. 10-1304.

United States Bankruptcy Court, E.D. Tennessee, Southern Division.

In this adversary proceeding Plaintiff Southern Heritage Bank (the “Bank” or “Plaintiff”) alleges that the Debtor Loretta J. Hart, formerly Loretta Hart Scheib, provided materially false statements to the Bank that were intended to deceive the Bank and induce it to make various loans to the Debtor. [Doc. No. 1, Complaint]. [1] The Bank brings a claim against the Debtor pursuant to 11 U.S.C. § 523(a)(2)(B) and seeks a determination from this court that the Debtor’s indebtedness to the Bank is non-dischargeable.

Having considered the entire record in the case, including the evidence presented by the parties at the hearing and the arguments of counsel, the court makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052.

I. Findings of Fact

The Debtor filed her Chapter 11 bankruptcy petition on October 22, 2009. See [Doc. No. 1, Bankr. Case No. 1:09-bk-16854]. This court converted the case to one under Chapter 7 on November 5, 2009. [Doc. No. 21, Bankr. Case No. 1:09-bk-16854].

The Plaintiff is a creditor of the Debtor who provided loans to Daisy Properties, LLC (“Daisy”), Optimum Staffing, Inc. (“Optimum”), and the Debtor. Debtor was a member of Daisy, along with her former husband, Jerry Scheib. The Debtor’s relationship to Optimum is not so clear and is central to this dispute. The loans are summarized below:

(a) Optimum Loan. Loan number 9067566 was made to Optimum on May 25, 2005. The original principal amount was $1, 175, 000.00. The Debtor guaranteed the loan on June 30, 2006. The loan is evidenced by a promissory note dated May 28, 2007. The current balance is $953, 375.96. Trial Exhibits 15 and 28. The purpose of this loan was to back a letter of credit that was issued to AIG for workers compensation insurance. The letter of credit was eventually called on May 25, 2008, and the loan was fully funded. Trial Testimony of Carol Killen, April 6, 2011 at 10:40-10:42 a.m.; Proof of Claim 14-1, Trial Exhibit 15. Following that letter being called and the loss of customers in 2007 and 2008, Optimum began experiencing financial difficulties and filed a Chapter 7 bankruptcy petition, Case No. 09-15008, on August 10, 2009. The Bank has liquidated all of the assets of Optimum which secured this and other loans from the Bank to Optimum which have been paid, including a factoring facility. Trial Testimony of Carol Killen, April 6, 2011 at 10:49-10:52 a.m.

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