Dubois et al v. Lindsley

-1-
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Baltimore
In Re: 	*
Harry E. Lindsley 	* 	Case No. 	05-39583-RAG
* 	Chapter 	7
*
Debtor 	*
************************************* 	*
Frank and Cathleen Dubois 	*
*
*
Plaintiffs 	*
vs. 	* 	Adversary 	No. 06-1102
Harry E. Lindsley 	*
*
*
Defendant 	*
MEMORANDUM OF DECISION IN SUPPORT OF
ORDER DETERMINING DEBT TO BE NONDISCHARGEABLE
This case presents the following question: does an experienced mortgage broker and real
estate professional who engineers and causes the establishment of an environmental easement and
mitigation credit bank as to certain valuable real estate which he owns, act with the requisite
fraudulent intent for purposes of 11 U.S.C. § 523(a)(2)(A) when he conveys and transfers the same
real estate in fee simple to good faith purchasers for value but continues to sell those mitigation
Signed: April 21, 2008
SO ORDERED
Entered: April 22, 2008 Case 06-01102 Doc 32 Filed 04/22/08 Page 1 of 25

1 Hereafter, all statutory citations are to the Bankruptcy Code, found at Title 11 of the
United States Code, unless otherwise noted.
-2-
credits to third parties such that the resulting debt should be excepted from his discharge? Based
upon the totality of the facts and circumstances of this case, the Court concludes for the reasons
explained herein that the resulting indebtedness may not be excepted from the Debtor’s discharge
and instead shall be declared non-dischargeable.
I. Preliminary Statement
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and § 157 and
Local Rule 402 of the United States District Court for the District of Maryland. This is a core
proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). The Court’s findings of fact and conclusions of
law in accordance with F. R. Bankr. P. 7052(a) are set forth below. Findings of fact misidentified
as conclusions of law shall be deemed to be findings of fact and conclusions of law misidentified as
findings of fact shall be deemed to be conclusions of law.
On October 14, 2005, Harry Lindsley, the Debtor in this case and Defendant in this
Adversary Proceeding, filed a petition under Chapter 7 of Title 11 of the United States Code. On
May 24, 2006, the Chapter 7 Trustee, Lori S. Simpson, filed a Report of No Distribution. Thus,
there are no assets available to satisfy the claims of unsecured creditors of Debtor’s bankruptcy
estate. On June 14, 2006, Debtor received his discharge of pre-petition debt under 11 U.S.C. §
727(b).
On January 26, 2006, Plaintiffs, Frank and Cathleen Dubois, filed a timely one-count
Complaint (Dkt. No. 1) against Mr. Lindsley, asserting that the judgment entered against Debtor
and in their favor by the Circuit Court for Anne Arundel County on August 8, 2005, in the amount
of $135,347.30, is nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A). 1 Debtor filed an Answer
to Plaintiffs’ Complaint (Dkt. No. 4) on February 28, 2006. Thereafter, discovery was conducted
Case 06-01102 Doc 32 Filed 04/22/08 Page 2 of 25

2 The Court noted on the Orders denying the cross Motions that there “exist genuine
issues of material fact to be resolved at trial, including whether Defendant acted with the
requisite intent for the debt to be judged to be nondischargeable under Section 523(a)(2)(A)”.
Conveniently, the motions narrowed the dispute to that issue and thus made it easy to deny both
prayers for summary judgment.
Defendant acknowledged in his motion that the credit sales were sales of the Plaintiffs’
legal interests. Nevertheless he attributes the sales to a “mistake” on his part and asserts that he
had no “intent” to cause Plaintiffs harm. Defendant’s Motion for Summary Judgement at 2.
Plaintiff countered with substantial evidence tending to show that Defendant’s conduct was
accompanied by a significant level of secrecy and deception, thus implying fraudulent intent.
Notwithstanding the compelling quality of Plaintiffs’ evidence, because the Defendant asserted
in sworn testimony that he did not intend to commit fraud, a genuine dispute as to a material fact
was therefore presented.
3 MLI is wholly owned and operated by the Defendant and appears to have had no
substantive purpose other than to own the Real Estate and serve as a vehicle to establish the
conservation easement and mitigation credit bank from which this dispute arises.
4 Maryland law expressly allows for the creation of conservation easements. See Md.
Code Ann., Real Prop. § 2-118. Such an easement, whether drafted in the form of an easement,
covenant, restriction, or condition, when not granted in favor of a dominant estate, is enforceable
in both law and equity as an easement in gross.
-3-
and the Parties filed cross Motions for Summary Judgment (Dkts. Nos. 15 and 16) on June 29, 2006
and July 13, 2006, respectively. The Court denied both motions on September 8, 20062 and this
matter preceded to trial on October 10, 2006.
Most of the underlying facts are not in serious dispute. The real estate in question is located
in Anne Arundel County and is known as 5990 Deale Beach Road, Deale, Maryland 20751 (Real
Estate). After Debtor caused his alter-ego entity, Marte Lynn, Inc. (MLI) 3, to purchase the Real
Estate in fee simple he took steps to formally establish a conservation easement on portions of the
land. 4 This carried with it a measure of altruism as one immediate effect was to environmentally
shield the designated property from development and attendant destruction. However, it also had
the pull of profit at its base as it enabled Debtor to create a “Mitigation Bank” from which he could
Case 06-01102 Doc 32 Filed 04/22/08 Page 3 of 25

5 Other than the Declaration of Covenants, Conditions, and Restrictions (Declaration)
introduced as Plaintiffs’ Exhibit No. 6, there was no documentary evidence submitted regarding
the creation or management of the Mitigation Bank.
-4-
sell so-called Mitigation Credits (Credits) to property developers enabling them to legally offset the
deforestation and reduction of wetlands caused by their projects. 5
Debtor subsequently sold the Real Estate to Plaintiffs. However, notwithstanding that sale
of all his tangible and intangible interests in the Real Estate (and unbeknownst to Plaintiffs), he
continued to sell Credits from the Mitigation Bank to developers for several years thereafter. Upon
discovering this, Plaintiffs brought litigation against Debtor and recovered the judgment mentioned
above for the full value of the Credits unlawfully sold by him. The litigation was grounded upon
the simple premise that the Credits were their property, appurtenant to their fee interest in the Real
Estate, and not the Defendant’s to sell. Plaintiffs now seek to have the Court determine that this
judgment is nondischargeable as obtained by fraud.
Debtor acknowledges that he continued to sell Credits from the Mitigation Bank after the
Real Estate was sold to Plaintiffs and does not dispute his liability for the underlying debt rendered
to judgment. In his defense, Debtor simply claims that the ongoing sales were the result of an
innocent mistake on his part - namely, that he reasonably believed that the Credits were still his to
sell. Therefore, he asserts, he cannot be held liable for fraud as he intended no wrongdoing.
Thus, the central question is whether Debtor acted with the requisite intent to complete the
case for fraud, and nondischargeability, under Section 523(a)(2)(A). For the reasons that follow,
the Court finds that Debtor’s claims of ignorance and misunderstanding are wholly unconvincing
and therefore finds that he acted with an abundance of fraudulent intent. Accordingly, the judgment
in favor of Plaintiffs shall be excepted from Mr. Lindsley’s Discharge in this Chapter 7 case.
Case 06-01102 Doc 32 Filed 04/22/08 Page 4 of 25

6 Debtor testified at trial that he has been a mortgage broker for 12 years. In May 2006,
at his deposition in this Adversary Proceeding, Debtor said he was employed by Lending
Mortgage Services. In June 2005, at his deposition in the Anne Arundel County litigation,
Debtor testified in detail about his employment background. See Plaintiffs’ Exh. 7. At that time,
Debtor was employed by several self-owned and operated companies including MLI and
Lending Services, Inc. 	As with MLI, Debtor was the president and sole shareholder of Lending
Services, Inc., an entity involved in mortgage banking. Prior to this time, Debtor was employed
for 6 years as a loan officer with Peoples Mortgage Corporation, for 2 years as a loan officer
with Fairfax Mortgage Company, and for a period of 5-10 years by Lindsley Insurance Agency
and Lindsey Realty in New Jersey. Debtor testified he was familiar with real estate transactions
and mortgage lending.
7 Hereafter, Debtor and MLI will be used interchangeably.
-5-
II. Factual Background
Debtor is a self-professed mortgage broker and real estate professional with extensive
experience in these fields.6 Debtor is also the president and sole shareholder, employee, and
director of MLI, his alter-ego corporation formed to engage in the business of real estate, and
environmental, consulting. In 1994, Debtor, via MLI 7, contracted to purchase the Real Estate. The
sale closed in February 1996. Debtor testified that his primary interest in the Real Estate was as an
investment asset. Indeed, it apparently remained in an unimproved, raw state during the time he
held dominion over it.
However, Debtor testified that when he purchased the Real Estate it was brought to his
attention that six acres, more or less, would be suitable for the development of a wetland and
reforestation mitigation bank. Debtor’s goal in establishing a “consolidated off-site mitigation area”
on that acreage was to sell environmental mitigation credits to developers to offset the
environmental effects of their projects elsewhere. Mr. Lindsley testified that “the credits were
developed through the efforts of my environmental [sic], Doug Musser of ERS [Environmental
Resource Services], and along with the County, State and the Corp of Engineers.” Transcript of
Record at 27. The exact nature of Mr. Lindsley’s relationship with ERS was never fully explained.
Case 06-01102 Doc 32 Filed 04/22/08 Page 5 of 25

8 At one time, the Real Estate formed part of a golf course but subsequently became
heavily wooded. It includes approximately 600' of river-front access and a driveway leading to
the dwelling.
9 The Declaration dated February 23, 1998 was the first of the two and the only one
offered into evidence. It effectively created a “conservation property” on 4.504 acres of the total
8.1679. In part it provided that there shall be no construction or defoliation on the conservation
property and called for the continued maintenance of the property in generally the same forested
condition as it existed at the time of the easement’s creation. Per the Declaration, Anne Arundel
County has the power to enforce the easement. Plaintiffs’ Exh. 6.
10 It is not clear at all when final approval for the Mitigation Bank was given or which
entity, or group, gave that final approval.
-6-
However, from his testimony it appears ERS carried a heavy workload from the Defendant with
respect to the establishment of the easement and credit bank, the “management” of the same and the
facilitation of later credit sales. So appealing to Debtor was the idea of owning a credit bank, that
he began to work on its establishment prior to his closing on the purchase of the Real Estate in 1996.
The total tract of land consists of 8 acres, more or less. To lay the foundation for the
Mitigation Bank, Debtor granted Anne Arundel County a conservation easement over slightly more
than 6 of those acres.8 There was testimony that the conditions and restrictions of the conservation
easement are set forth in two separate declarations of covenants, recorded in the appropriate Land
Records.9 Debtor testified that while he did work with ERS, and County and State agencies, to
create the easement and Mitigation Bank, he was not represented by legal counsel in this endeavor.
According to Debtor, this was the first time he had been involved in setting up a mitigation bank and
the first one ever established in Anne Arundel County. MLI did not own, and was not involved in
creating, any other mitigation banks nor did it conduct any other business. After receiving final
approval for the project, Debtor began selling the Credits in either 1997 or 1998. 10 The Credits were
marketed through a variety of means to builders, developers and engineers who might have a need
for this unique and specialized product.
Case 06-01102 Doc 32 Filed 04/22/08 Page 6 of 25

11 Under “Remarks”, the Listing reads “Fabulous piece of waterfront acreage. Total of
8.16 acres. 6 acres of lot is in conservation easement. Homesite is approx. a 2.16 acre site”.
Plaintiffs’ Exh. 2. “Ownership” was given as “Fee Simple, Sale”.
-7-
In early 2000, Debtor decided to list the Real Estate for sale with a broker. The Full Listing
(Listing), dated April 7, 2000, explicitly stated that 6 acres of the property were subject to the
conservation easement.11 The stated asking price was $299,900. Plaintiffs’ Exh. 2. On April 10,
2000, Plaintiffs, who had never met Mr. Lindsley before engaging in this transaction, submitted an
offer to his realtor in the amount of $289,000. Plaintiffs’ Exh. 3. The offer was accepted and
Plaintiffs subsequently purchased the Real Estate from MLI. 	The transaction closed on May 31,
2000 and title was formally transferred by recordation of the Deed on June 30, 2000. Plaintiffs’
Exh. 1.
Ordinarily, it might be considered quaintly archaic in this day and age to pause for a
recitation of the language of a real property deed that defines the nature of the estate conveyed.
Save for an anxiety-gripped first year law student, this level of detail is usually passed over with a
minimum of concern. However, it is worth accentuating here in light of Mr. Lindsley’s extensive
real estate background and his professed claim that at the time of settlement he believed that
somehow the ownership of the Credits had been severed from the land itself. As evidenced by the
Deed, MLI transferred fee simple title to Plaintiffs as tenants by the entirety, together “with the
buildings and improvements thereon erected, made or being; and all and every, the rights, alleys,
ways, waters, privileges, appurtenances, and advantages thereto belonging, or in anywise
appertaining” in exchange for the purchase price. Plaintiffs’ Exh. 1 (emphasis supplied). Thus,
there was no limitation upon the estate conveyed by the Deed. Likewise, no interests or rights were
carved out to remain in the seller.
Case 06-01102 Doc 32 Filed 04/22/08 Page 7 of 25

12 The Court assumes that this was the basis for the Circuit Court’s finding in favor of the
Duboises. The burdens created by the conservation easement in favor of the County, pursuant to
the terms of the Declaration, run with the land in perpetuity and apply to any successors in title
to Debtor. Plaintiffs’ Exh. 6. Since the Plaintiffs took fee simple title (the greatest title known
by the law) to the Real Estate subject to the burdens of the conservation easement, any rights
created pursuant to the easement likewise became property of the Plaintiffs.
13 This admission was conclusively established for trial. See Fed. R. Civ. P. 36(b), as
incorporated by Fed. R. Bankr. P. 7036.
14 See Plaintiffs’ Exh. 8, Defendant’s Answers to First Request for Admissions, nos.14,
17-30.
-8-
Hence, without an express instrument stating to the contrary it appears that rights to any
Mitigation Credits remaining would convey with the land. 12 And later events, namely the Debtor’s
post-settlement sales of Credits, demonstrated that there was ample credit value remaining in the
Mitigation Bank at the time of settlement. The question of whether such value existed was
explicitly raised at settlement by Mr. Dubois. He testified that he “asked him [Debtor] if all the
credits had been sold, and he said, yes, they had been sold at the closing.” Transcript of Record at
9. This representation was patently false. Moreover, Debtor admitted during discovery that “at no
time prior to settlement or at settlement, did MLI or Lindsley divulge to Plaintiffs that MLI and
Linsdley intended to continue selling mitigation credits or rights associated with the Property after
the Property was sold to Plaintiffs”. See Plaintiffs’ Exh. 8 (Answer to Plaintiff Frank Dubois’s
Request for Admission Number 13).13 Thus, there was evidence that on May 31, 2000, Debtor
expressly denied there was any credit value in the Mitigation Bank while he knew that to be false
and had every intention of continuing to profit from that value.
After closing, Debtor followed through on his acknowledged intention by continuing to sell
the Credits to third parties, engaging in at least 15 different sales transactions from August 2000
until January 2003.14 For each transfer (and notwithstanding the sale to Plaintiffs), Debtor used
identical form contracts that expressly identified MLI as the owner of the Real Estate. These form
Case 06-01102 Doc 32 Filed 04/22/08 Page 8 of 25

15 The contracts are titled “MARTE LYNN CONSOLIDATED OFFSITE WETLAND
MITIGATION AREA - AGREEMENT OF SALE”. The one-page contracts each identify MLI
as ‘landowner’ in 3 distinct places. See Plaintiffs’ Exh. 28.
16 The Circuit Court for Anne Arundel County did not make a finding of fraud in
awarding the judgment and Plaintiffs do not attempt to rely upon any form of collateral estoppel.
Debtor stated in his Motion for Summary Judgment that Plaintiffs “obtained summary judgment
against the Defendant based upon the indisputed (sic) facts that the sales took place” (Dkt. No.
15, pg. 4). Thus, this Court is justly empowered to make independent findings for the purpose of
determining the dischargeability of the debt under the Bankruptcy Code. Archer v. Warner, 538
U.S. 314, 321 (2003); Brown v. Felsen, 442 U.S. 127, 138 (1979).
-9-
contracts, prepared by ERS, were the same he had used prior to the May 2000 settlement with the
Plaintiffs. 	Debtor’s signature, as President of MLI, appears next to the word “LANDOWNER”
(capital letters in original document) on each contract.15 There is no dispute that neither Mr.
Lindlsey, nor MLI, were the owners of the underlying land at the time he signed these sales
agreements.
On October 22, 2004, Plaintiffs filed a lawsuit for constructive fraud against Debtor in the
Circuit Court for Anne Arundel County. They asserted that Debtor sold the subject Credits to
various property developers at a time when they belonged to Plaintiffs and therefore Debtor was
liable to them for damages measured by the value of each sale. On August 8, 2005, the Circuit
Court for Anne Arundel County granted summary judgment in Plaintiffs’ favor and entered a money
judgment against Debtor in the amount of $135,347.30.16 Approximately two months later, Debtor
filed his bankruptcy case under Chapter 7 in an attempt to have this debt discharged under Section
727. Plaintiffs then filed this instant action seeking to have their judgment declared
nondischargeable under Section 523(a)(2)(A) and in that manner excepted from Mr. Lindsley’s
discharge.
Case 06-01102 Doc 32 Filed 04/22/08 Page 9 of 25

17 Section 523(a)(2)(A) provides:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does
not discharge an individual debtor from any debt--
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the
extent obtained by--
(A) false pretenses, a false representation, or actual fraud, other than a statement
respecting the debtor's or an insider's financial condition;
-10-
III. Legal Standards
Under Section 523(a)(2)(A), debts "for money, property, services" are nondischargeable "to
the extent obtained, by - false pretenses, a false representation, or actual fraud".17 While the
underlying validity of a creditor's claim is determined by state law, the issue of nondischargeability
is a matter of federal law governed by the Bankruptcy Code. Grogan v. Garner, 498 U.S. 278, 283-
284 (1991), citing to Brown v. Felsen, 442 U.S. 127, 129-130 (1979). The standard of proof for
Section 523(a)’s dischargeability exceptions is the ordinary preponderance-of-the-evidence
standard. Grogan, 498 U.S. at 661.
Section 523(a)(2)(A) finds its genesis in the common law of torts. Field v. Mans, 516 U.S.
59, 70 (1995). 	Its operative terms, “false pretenses, a false representation, or actual fraud”, are
terms of art that imply the elements the common law has defined them to include. Id. 	With that in
mind, it is settled that in order to sustain an action under Section 523(a)(2)(A) a plaintiff must
satisfy five elements. Grogan v. Garner, 498 U.S. 279, 288 (1991); In re Rountree, 478 F.3d 215,
218 (4th Cir. 2007); In re Koep, 334 B.R. 364, 371-72 (Bankr. D. Md. 2005); In re Pleasants, 231
B.R. 893, 897 (Bankr. E.D. Va. 1999), aff’d, 219 F.3d 372 (4th Cir. 2000). In order, they are:
1. 	That a representation was made by the defendant;
2. 	That the defendant know that the representation was false
when she made it;
Case 06-01102 Doc 32 Filed 04/22/08 Page 10 of 25

18 The same stance was effectively taken by Mr. Lindsley in his Motion for Summary
Judgment. The totality of the circumstances do establish that Mr. Lindsley obtained property
from the Plaintiffs and they were damaged as a result. Furthermore, as noted above, Mr. Dubois
gave undisputed testimony as to Debtor’s express representation that all of the Credit value in
the Mitigation Bank had been exhausted at the time of settlement. Moreover, Mr. Lindsley, did
not dispute that Mr. and Mrs. Dubois justifiably relied upon that representation and, clearly, the
evidence supported that conclusion. See Field, 516 U.S. at 62 (level of reliance required by
fraud exception to discharge under Section 523(a)(2)(A) is not reasonable reliance, but the less
demanding standard of justifiable reliance).
-11-
3. 	That the defendant made the representation with the intent
and purpose of deceiving the plaintiff;
4. 	That the plaintiff justifiably relied on the false representation;
and
5. 	That plaintiff suffered damages as a proximate result of the
representation.
Koep, 334 B.R. at 372. A misrepresentation can be any words or conduct which produce a false or
misleading impression of fact in the mind of another. Pleasants, 231 B.R. at 897. An omission may
constitute a misrepresentation where the circumstances are such that a failure to speak or act creates
a false impression. Id.
During Closing Argument, Debtor’s Counsel only challenged the existence of the third
element – Debtor’s intent – and did not dispute the existence of the other four elements.18
Specifically, Debtor claims his mistaken belief as to the facts should not saddle him with a
nondischargeable debt. Thus, at trial he sought to prove the purity of his heart by establishing that:
(a). 	He legitimately believed that he had the ongoing right to continue to sell Credits
from the Mitigation Bank;
(b). 	Documents, including public records, relevant to the existence of the Mitigation
Bank confirmed this belief; and
(c). 	His, and MLI’s, ongoing obligation to manage the conservation easement translated
into a corresponding right to the benefit of the value of the Mitigation Credits.
Case 06-01102 Doc 32 Filed 04/22/08 Page 11 of 25

-12-
The case law provides that intent shall be determined subjectively. This means that the trier
of fact must take into account the totality of the relevant circumstances in each particular case. In re
Rembert, 141 F.3d 277, 281 (6th Cir. 1998); Pleasants, 231 B.R. at 898. Intent to deceive may be
inferred from the circumstances, including whether the defendant knowingly or recklessly made
false representations which the defendant should have known would induce the plaintiff to rely on
them. Id.; Koep, 334 B.R. at 372.
In this instance, Debtor’s misrepresentation was direct and substantial – his bold, undenied
statement to Mr. Dubois at settlement that the Credits had already been sold when in truth they had
not. The analysis therefore must focus upon (a) whether a reasonable basis for the Debtor’s claimed
mistaken belief existed and (b) whether his overall actions comport with the type of conduct one
would expect from someone acting in good conscious, considered in the overall context of this case.
Viewed through that prism, the Court finds that Debtor’s representation and subsequent actions
establish that he took Plaintiffs’ property through subterfuge and secrecy with the intent (and hope)
that his scheme would remain undiscovered. Thus, the circumstances of this case show an intent to
defraud Plaintiffs by depriving them of the property rights which he knew had been conveyed to
them.
IV. Testimony
The Parties agree they did not discuss either the conservation easement or the Mitigation
Bank Credits during the weeks leading to settlement. The Listing itself only stated that six acres of
the Real Estate was in “conservation easement”. The Listing provided no information with respect
to either the existence of the Mitigation Bank or whether any Credit value remained.
As for the settlement date, Mr. Dubois testified that he and Mr. Lindsley primarily discussed
the future of the easement; i.e., the ongoing obligations of maintenance, monitoring and reporting
Case 06-01102 Doc 32 Filed 04/22/08 Page 12 of 25

19 It is unclear from the record how Plaintiffs came to know that the Credits – as opposed
to the easement itself – actually existed. Mr. Dubois testified that he probably was told of the
Credits’ existence by either the Debtor or the realtor.
20 Both Mr. and Mrs. Dubois testified that Debtor sold Credits for areas he had not yet
restored, including a 38,000 square-foot spoil pile attributable to the driveway installation and
the former golf course's dump. Plaintiffs believe that Debtor has yet to restore the property to its
original condition as required by the easement. In particular, Mrs. Dubois testified that while
Debtor had worked to maintain the trees he had not begun the larger remediation tasks. Debtor
disputed Plaintiffs' characterization of both the size and expense of removing the spoil pile. He
-13-
with respect to the preservation in the status quo of the forested area set aside. Mr. Lindsley
claimed that he was required to perform the necessary maintenance and concomittant duties and
therefore would have to visit the acreage from time to time. As stated previously the only specific
reference to the Credits themselves was the Debtor’s representation that all had been sold. 19
Therefore, it was Mr. Dubois’s understanding that any credit value had already been exhausted. Mr.
Dubois thus rose from the settlement table with the understanding that 6 acres of the Real Estate had
been set aside as a conservation easement, that Debtor would have to monitor it from time to time in
accordance with the easement’s requirements and that any appurtenant Credit value that may have
previously existed (and the concomitant right to profit from it) was gone. As for the post-settlement
period, Mr. Dubois testified that in one respect Debtor was true to his word as on occasion he
observed Mr. Lindsley walking the Real Estate accompanied by others.
Mrs. Dubois, a self-described environmentalist and tree conservationist, testified that her
only discussion with the Debtor at settlement involved his claimed duty to continue to maintain the
trees subject to the easement. She left the settlement with the contented understanding that as a
result of the easement, the six acres would serve for many years as an environmental habitat for
foliage and animals. She also understood, from Debtor’s explanation, that the easement required
him to have continuing maintenance obligations, and an ongoing presence, with respect to the
acreage that was set aside.20
Case 06-01102 Doc 32 Filed 04/22/08 Page 13 of 25

testified that at the time he was installing the driveway, the Parties discussed using the resulting
spoil pile for construction. Debtor stated that the Plaintiffs decided against this and that he then
removed the spoil pile. Debtor also stated that the spoil pile attributable to the golf course dump
is in fact only 2,000 square-feet and would cost only $2,000 to remove. Debtor acknowledged
that he ceased performing maintenance at the time he was served with the complaint in the State
Court litigation.
21 Debtor countered that the State was actually there for a poison ivy problem, not to
count credits.
-14-
However, three years after settlement her perspective began to change when in July 2003,
she witnessed a group of unknown individuals on the Real Estate. Upon confronting the men, she
learned they were employees of the Maryland Department of the Environment and were there to
assess the survivability of the trees in order to determine whether an additional $10,000 in Credits
could be sold. Spurred by the news that Debtor was conducting an “ongoing business” related to the
existence of the easement, Plaintiffs investigated and learned for the first time that Debtor was
engaged in the continuing sale of the Credits.21 On or around October 15, 2003, Mrs. Dubois
testified that Debtor called the Dubois household and left a message to the effect that he had heard
Mrs. Dubois had been "snooping around". As Mrs. Dubois told it, when she returned his call,
Debtor said that the Credits were none of her business and also warned her not to talk to anyone
about either the Real Estate or the Credits.
On direct examination, Debtor left undisputed much of Plaintiffs’ testimony regarding the
discussions had at settlement. Mr. Lindsley summarized the conversation regarding the existence of
the environmental easement, and the Credits, as follows:
“I don’t know the exact wording that was discussed, but I made clear
that this was six acres of property that was in an easement with the
County, that they would have access to their property only to enjoy,
you know, walking, playing on it. That they could not cut any trees,
they could not maintain it even,
* 	* 	*
Case 06-01102 Doc 32 Filed 04/22/08 Page 14 of 25

22 As noted earlier, the fact that he did not tell them of the existence of the remaining
Credits, and his intention to sell them, was conclusively established prior to trial by his
admission to Request for Admission No. 13. See Plaintiffs’ Exh. 8.
-15-
I heard the testimony of Mr. Dubois talking about credits. And I
don’t recall what was said about credits other than that. . .”.
Transcript of Record at 33-34.
Thus, Mr. Lindsley did not dispute that he represented to Mr. Dubois at the time of
settlement that all the Credits had been “sold”. Of equal moment is the absence of any evidence
from Mr. Lindsley that he ever told Plaintiffs that Credits still existed and that he intended to
continue selling them post-settlement.22 It bears emphasizing here that Debtor may have been
thoroughly honest in isolation about the existence of the 6 acre easement and the limitations that
created with respect to Plaintiffs’ future use and enjoyment of the Real Estate. However, that is an
entirely separate issue from the existence, mechanics and ongoing value of the Mitigation Bank,
established as a “virtual” property interest upon the platform of the easement’s dedication to the
County.
Tellingly, when asked to describe on direct testimony “what was in his head” with respect to
the crucial issue – his intent, and the non-disclosure of material facts relative to the Mitigation Bank
– Mr. Lindsley stated:
Well, simply that they were buying a property that offered them,
again, approximately two acres to build a home on the waterfront,
which was right near the water edge, which gave them a very
attractive site and place to build and to live. That this was a stately
looking location. That the six acres were set aside as this mitigation
bank. That they had no responsibility for nor any control of. Again,
simply to walk on it.
Transcript of Record at 35.
In other words, he provided no meaningful explanation at all with respect to the ultimate fact
in issue. Mr. Lindsley was willing to disclose an abundance of information regarding the
Case 06-01102 Doc 32 Filed 04/22/08 Page 15 of 25

23 During his direct testimony Debtor was asked about the pricing of the Real Estate for
sale; i.e., whether the value of the Credits was included or not. At first he testified that the value
of the Real Estate – the sale price – did include the value of the unsold Credits. However, he
later testified the Credits’ value was excluded when asked by the Court for clarification.
Whatever the Defendant’s actual thought process on this point, it is clear beyond dispute that the
Plaintiffs bought and paid for the entire 8 acres, including the area set aside for the conservation
easement, and all rights appurtenant thereto.
24 Again, it is worth noting that Debtor did not submit into evidence any written
“management plan” that invested either him, or MLI, with any ongoing maintenance obligations
regarding the easement, or, moreover a separate, personal ownership interest in the Credits apart
from the land.
25 In this regard, the Court cannot avoid noting that Mr. Lindsley became agitated and
used disgusting and profane language during his deposition in the State Court proceeding in
response to what appeared to be relatively innocuous questions from Plaintiffs’ Counsel.
Plaintiffs’ Exh. 7, Deposition of Debtor, Exh. A thereto, pg. 17.
-16-
restrictions created by the easement and the claimed ongoing maintenance obligations of MLI.
Express and unequivocal disclosure of the existence of the Credits, their substantial value and his
intention to continue to sell them post-settlement simply was not provided. 23
Debtor underpinned his post-closing Credit sales on a presumed severance of the Credits
from the Real Estate and independent documents, some of them publicly recorded, that allegedly
confirmed that understanding. 	Debtor claims that he was justified in concluding that actual
ownership of the Real Estate was irrelevant to the ownership of the Credits following the May 2000
settlement. He also asserted that his retention of maintenance responsibilities pursuant to the
“management plan” with the County, further buttressed the alleged severance.24
Debtor agreed that he did have a telephone conversation with Mrs. Dubois on October 15,
2003, but claimed the conversation became heated due to Mrs. Dubois' tone and behavior.25 Debtor
denied telling Mrs. Dubois that she could not talk to anyone about the property or the Credits,
highlighting that he did not have the ability to prevent her from speaking to government agencies.
Case 06-01102 Doc 32 Filed 04/22/08 Page 16 of 25

-17-
Debtor also stated that during this conversation Mrs. Dubois barred Debtor’s future access to the
property.
V. Analysis
A. The Debtor Misrepresented the True Status of the Credits at Settlement.
Debtor did not deny that he told Mr. Dubois that all the Credits “had been sold” at the time
of settlement. Patently, this was a false statement. In the complete absence of any contradictory
evidence, the Court accepts Mr. Dubois characterization of the exchange between he and Mr.
Lindsley and, moreover, its full impact with respect to the issues presented herein. When this
representation is linked with the Debtor’s admission that he never told Plaintiffs of his intention to
continue selling Credits after settlement, the resulting inference is elevated to an impressive level of
potency. In other words, Mr. Lindsley was well aware at settlement that Credits still existed in the
Mitigation Bank. Yet he chose not tell Mr. Dubois the truth when the specific question was asked.
And this happened while the Debtor planned on selling the Credits that he failed to disclose. If the
Debtor honestly believed he had the legitimate right to the remaining Credit value, and knew such
value existed, why did he hide that information? In this context, the only possible motivation on his
part for choosing dishonesty had to be to purposefully deceive Mr. Dubois so as to continue selling
Credits for his own personal benefit. If that were all the evidence showed, then it would shine a
powerful light upon the narrow question of intent. However, there is much more available for
consideration.
Before turning to that evidence, it is worth asking whether there was some other
conversational exchange or written communication that reflects a good faith effort by the Debtor to
inform the Plaintiffs of the complete state of affairs with respect to the Mitigation Bank? The Court
can find none in the record. The Plaintiffs agreed in their testimony that they were not made aware
Case 06-01102 Doc 32 Filed 04/22/08 Page 17 of 25

26 See also Plaintiffs’ Exh. 7, Debtor’s Deposition, pgs. 25-28.
-18-
of the remaining value in the Mitigation Bank before settlement. At best, Debtor stressed only that
6 acres of the Real Estate was subject to a conservation easement that protected it from
development. Debtor did not go the crucial next step and explain that significant value in the form
of Credits remained tied up in the protected 6 acres. 26 Whether Debtor affirmatively declared that
all credits were exhausted as Mr. Dubois testified or was simply silent on the issue, the Court finds
that Plaintiffs were not made aware that they had a significant additional property interest in the
Real Estate and that Debtor was not forthcoming about his intention to continue selling that interest
once the transaction closed.
B. There was no Documentation that Supported Debtor’s Claimed Belief as to His Separate
Interest in the Credits.
At several crucial points during his testimony (both in discovery and during trial), Debtor
asserted that either public records, or documents relevant to the sale of the Real Estate, supplied
clear notice of the Mitigation Bank Credits. Debtor relied upon those alleged documents as both the
source, and the confirmation of, his claim that the right to retain and sell Credits remained in him
and, moreover, as providing due notice to the Duboises of that fact. For example the following
testimony was given at the end of Debtor’s direct examination:
Q 	The whole concept of the mitigation bank is of public record, is it not?
* 	* 	*
A 	Yes, sir.
Transcript of Record at 39.
That testimony was followed by this early exchange during his cross-examination:
Q 	Now, the deed that you executed to the Duboises, that didn’t reserve any rights in
you, did it, to continue selling credits from their property?
Case 06-01102 Doc 32 Filed 04/22/08 Page 18 of 25

-19-
* 	* 	*
A 	The easement gave me that right, I thought.
Transcript of Record at 41.
Accordingly, counsel for the Plaintiffs presented the Debtor with copies of the Declaration
(which creates and defines the easement) and the Listing. With those documents before him, Mr.
Lindsley was asked to point out any reference to the Credits in either.
Q 	Now my question to you is where does it make any reference in that document [the
Declaration] . . .to credits that are being sold in exchange or associated with that easement?
A 	I don’t see any. It doesn’t appear that there is anything related to credits except for,
again, the management plan.
* 	* 	*
Q 	Now, that listing agreement makes no reference of the seller’s right to retain or retain
the right to sell credits from this property, does it?
* 	* 	*
A 	“Six acres of lot is in conservation easement.” And, again, because of that easement
and the management plan, that’s where I assumed I have the right to sell credits.
Q 	But my question – but so my question, there is no reference to any credits --
A 	No there isn’t.
Q 	– or right to sell, is that correct?
A 	No, you’re – that’s correct.
Transcript of Record at pgs. 44-47.
In short, none of the documents allegedly relied upon by the Debtor as justifying his
“mistake” give even a scintilla of support for his claim that either the Credits, or the Mitigation
Bank itself, were severed from the Real Estate. They do not even provide an arguable basis from
Case 06-01102 Doc 32 Filed 04/22/08 Page 19 of 25

-20-
which to draw that conclusion. Thus, there could have been no reasonable, good faith belief on
Debtor’s part that any property interest in the Credits remained his to sell after settlement based
upon the documents he relied upon. Likewise, there is even less of a reason to presume that the
Plaintiffs would have been alerted to either the Credits or his claim to ownership of them. The
Declaration references a “Management Plan” but it is silent as to the Mitigation Bank and the
process of creating, transferring or selling Credits. The Listing offered the entire 8 acres for sale,
subject only to the conservation easement. The Deed transfers the entire estate in fee simple and
carves out no exceptions. No other relevant documents were admitted into evidence. Mr. Dubois
referred to a management plan with the County at trial and hinted that it had some relevance to his
professed understanding. However, no written “management plan” was submitted into evidence.
Debtor is a real estate professional with a level of skill and knowledge commensurate with
his long term experience in that field. It was he who established the Mitigation Bank, without the
assistance of counsel, and it is not reasonable to believe that he could have misconstrued the
ownership rights to a core property interest arising therefrom based upon the documentary
references allegedly relied upon. Had he desired to legitimately retain ownership of the Credits for
himself, he could have added explicit carve-out provisions in the Listing and prospective purchasers
would have proceeded on that basis. Instead, Debtor left the Listing silent on this point as are the
other relevant documents. Plaintiffs were thus left to learn the real score from a chance encounter
and their own subsequent investigation. Accordingly, the Court finds that no documents exist from
which the Debtor could have reasonably concluded that he retained a property interest in the Credits
after the settlement.
C. Debtor did not Establish that Ongoing Maintenance Obligations Created a Property
Interest in the Credits for His Benefit.
Case 06-01102 Doc 32 Filed 04/22/08 Page 20 of 25

-21-
Notwithstanding the fallacious contentions addressed above, Debtor asserts as an additional
ground a belief that his ability to continue selling Credits after the settlement was grounded in the
management plan that placed a continuing duty on MLI to maintain the protected six acres. Debtor
claims that because of this ongoing responsibility, ownership of the Real Estate was irrelevant to the
ownership of the Credits and that a property interest arose in him as a quid pro quo.
For reasons that should now be clear, the Court finds this explanation utterly unconvincing.
The easement created by the Declaration was of course binding upon MLI as grantor when it owned
the Real Estate. However, it was also made expressly binding upon MLI’s “successors and assigns”
by the Declaration. Plaintiffs’ Exh. 6. In short, Plaintiffs are MLI’s successors and assigns and
upon transfer of title, all the benefits and burdens devolved upon them to the complete exclusion of
MLI. While the Declaration does create ongoing maintenance obligations for the protected acreage,
none are deemed personal to MLI as opposed to merely transferring to its successors-in-interest.
Likewise, the Declaration says nothing about MLI continuing to have responsibility for maintenance
in the event the Real Estate is transferred. Moreover, as noted above, while Mr. Lindsley relied
upon the “management plan” referred to in the Declaration as creating maintenance obligations, no
such plan was offered into evidence. If such a management plan exists, his failure to submit it in his
defense speaks volumes.
The Court is of the opinion that it is just as likely, in light of the totality of the surrounding
circumstances, that Mr. Lindsley simply told the Plaintiffs he had ongoing maintenance
responsibilities in order to further cover-up his scheme to sell their property. This tactic would give
him an excuse to visit the Real Estate at will and also remain in contact with the County to the
exclusion of the Plaintiffs. In any event, the evidence showed only a minimal amount of
maintenance work on his part and certainly not enough to support a bill for $135,347.
Case 06-01102 Doc 32 Filed 04/22/08 Page 21 of 25

-22-
The Court finds there was no reasonable basis for Mr. Lindsley’s claim that he had ongoing
maintenance responsibilities, or if they existed, that those responsibilities entitled him to the value
of the Credits. Therefore, the Court finds that these assertions do not justify his claimed mistake
and are therefore not supportive of subjective good faith.
D. The Manner in Which the Debtor Sold the Remaining Credits Post-Settlement is
Relevant to his Subjective Intent.
Debtors’ scheme spanned several years. After the May 2000 settlement, Debtor sold
$135,347 in mitigation credits in at least 15 separate transactions. Debtor, via MLI, utilized a form
contract which identified MLI as the “landowner”. Debtor claimed that the form contract, created
when he began lawfully selling credits, was used ‘in error’ after the sale of the Real Estate to
Plaintiffs. Plainly, Defendant knew MLI was not the landowner when these sales were made.
Debtor’s explanation for this egregious and blatant misrepresentation is that he did not read the
contracts and did not pay close attention to what the forms said prior to the initiation of the
litigation, at which time he ceased selling credits. Relying upon his professed belief that he had the
right to sell the Credits at the time of each transaction, he shrugs off the crucial misrepresentation as
amounting to nothing. Thus, the inaccurate form contract is claimed to be oversight and not
evidence of his attempt to pull a fast one on both the buyers of credits and the Plaintiffs.
Once again, the Court must reject Debtor’s claim out of hand. With the Debtor’s long time
profession as background, it is impossible to believe he was not aware of this glaring error. Directly
below his signature line, the documents recite that the “landowner” is “Marte Lynn, Inc.” Even the
most cursory inspection of each agreement would have revealed this repeated error, and it is not
reasonable to believe that he signed each, with its separate purchasers and varying material terms,
without a single close reading. The Court simply cannot fathom how Debtor could have somehow
overlooked in good faith these repeated untruths or, failed to correct the form contract so that it
Case 06-01102 Doc 32 Filed 04/22/08 Page 22 of 25

-23-
accurately reflected MLI’s status. Since he contends that he believed he could continue to sell the
Credits, revising the form contract to reflect that MLI owned the “credits”, but did not own the
“land”, should have had no detrimental effect on his rights. Instead, Debtor decided to leave the
form contract in its original state with the misrepresentation waving like a red flag. The Court can
only conclude that Debtor knew he had to own the Real Estate to sell the Credits and that no
purchaser would have accepted a contract signed by anyone less than the landowner. In short, the
later misrepresentations included in the sales agreements are additional, powerful evidence of the
Defendant’s bad faith and subjective evil intent.
E. The Independent Value of the Credits is Irrelevant to the Rights of the Landowners.
As a final argument, Debtor asserts that the total purchase price is evidence that he did not
intend to defraud Plaintiffs. While his testimony was contradictory on this point, in the end Debtor
testified that the total purchase price only reflected the value of the 2-acre parcel and that if he had
intended to transfer ownership of the Credits, the sales price would have been higher. Debtor
testified in a similar fashion in his deposition in May 2006. However, this contention is completely
irrelevant as there is no dispute that Plaintiffs purchased the entire 8 acre tract for an agreed upon
price. As no rights or property interest were carved out and retained by Defendant, and as there is
no contention that the price was inadequate, any claim that the Real Estate would have been “worth
more” with the Credits included is completely spurious.
VI. Conclusion
In conclusion, the Court is required to subjectively evaluate the totality of circumstances
presented. In that regard, the Court must first be cognizant of the undisputed facts and the logical
inferences to be drawn from such facts. Debtor sold Mitigation Bank Credits to third-party
purchasers after transferring fee simple title to the real property to Plaintiffs, resulting in the
Case 06-01102 Doc 32 Filed 04/22/08 Page 23 of 25

-24-
judgment that spawned his bankruptcy and this litigation. When asked at settlement, Debtor told
Mr. Dubois that no Credits remained to be sold. In reality, substantial Credit value remained to be
exploited and Debtor intended to do so. Thus, Debtor did not tell the Plaintiffs the truth and then
used that initial misrepresentation to create a climate suitable to the surreptitious sell off of
Plaintiffs’ property interests.
The documents of public record do not refer to the Credits nor do they dispel the conclusion
that the Debtor committed fraud. Having hidden the Credit’s existence from Plaintiffs, Debtor then
sold them away with the knowledge that he had transferred title in the underlying property to
Plaintiffs. In order to effectuate each sale, Debtor, a real estate professional, continued to hold
himself out as the owner of the underlying property.
Quite simply, based upon this set of facts, the preponderance of evidence compels the
conclusion that Debtor knowingly misrepresented that state of the Credits in order to purposefully
deprive the unwitting Plaintiffs of their property rights. Thus, the Court finds that Debtor
subjectively intended to defraud Plaintiffs and all the elements of Section 523(a)(2)(A) have been
established. On that basis, the Plaintiffs’ judgment and underlying debt will be excepted from the
Debtor’s discharge. 	A separate order will issue.
cc: 	Stephen A. Oberg, Esq.
Wayne T. Kosmerl, Esq.
Counsel for Plaintiffs
Council, Baradel, Kosmerl & Nolan, P.A.
125 West Street
4th Floor; P.O. Box 2289
Annapolis, MD 21404
Charles J. Broida, Esq.
Counsel for Debtor-Defendant
5401 Twin Knolls Road, No 7
Columbia, MD 21045
Case 06-01102 Doc 32 Filed 04/22/08 Page 24 of 25

-25-
Frank Dubois
Cathleen Dubois
5990 Deal Beach Road
Deale, MD 20751
Harry E. Lindsley
1014 Creek View Court
Churchton, MD 20733
End of Order
Case 06-01102 Doc 32 Filed 04/22/08 Page 25 of 25