Freeman v. Sessoms

NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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: 	Chapter 7
In re: 	:
: 	Case No. 20-35636 	(CGM)
Charles Littleton Sessoms, 	:
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Debtor. 	:
:
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Leslie Renard Freeman, 	:
: 	Adv. No. 21-09006 (CGM)
Plaintiff, 	:
:
v. 	:
:
Charles Littleton Sessoms 	:
Defendant 	:
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MEMORANDUM DECISION AFTER TRIAL DENYING PLAINTIFF’S REQUEST
TO DEEM ITS DEBT NONDISCHARGEABLE UNDER § 523(a)(2)(A)
A P P E A R A N C E S:
MICHAEL BRODLEIB
Schlam Stone & Dolan LLP
26 Broadway, New York, NY 10004
Attorneys for Plaintiff
CHARLES LITTLETON SESSOMS, pro se
CECELIA G. MORRIS
UNITED STATES BANKRUPTCY JUDGE
The plaintiff, Leslie Renard Freeman (“Freeman” or “Plaintiff”), commenced this
adversary proceeding against Charles Littleton Sessoms (“Debtor”) seeking a determination of
the dischargeability of debt under 11 U.S.C. § 523(a)(2)(A). The Court conducted a trial on
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March 29, 2022. For the reasons stated below, the Court holds that the debts owed to Freeman
are not excepted from discharge under § 523(a)(2)(A).
Jurisdiction
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. §
157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated
January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(I) (determinations as
to the dischargeability of particular debts).
Background
On January 16, 2020, Charles Sessoms (“Debtor”) filed a voluntary petition for relief
under Chapter 7 of the Bankruptcy Code. On February 15, 2021, Freeman filed this adversary
proceeding seeking a determination that debt owed to him is non-dischargeable under §
523(a)(2)(A) for monies obtained by false pretenses, false representation, or actual fraud.
Freeman alleges that he loaned Nexus Health LLC (“Nexus”) money and was never repaid.
Compl., ¶ 1, ECF No. 1.1 Nexus was a company managed by Debtor. Compl., ¶ 15; Answer, ¶
15, ECF No. 4.
Freeman argues that sometime in 2010, his financial advisor, Anthony Epps, approached
him about an investment opportunity in Nexus. Compl., ¶ 16–17. Freeman states that he loaned
Nexus $50,000 with a repayment date of March 31, 2011, along with $7,500 in interest. Compl.,
¶ 19. Freeman alleges that the Debtor and another principal of Nexus, Michael Johnson
(“Johnson”), personally guaranteed the loan. Compl., ¶ 1. Debtor denies signing any loan
agreement guaranteeing the obligations of Nexus. Answer ¶ 2. Only Johnson signed the loan
agreement. Compl., ¶ 20.
1 Unless otherwise specified, references to this Court’s electronic docket (“ECF”) are to the
docket of adversary proceeding, 21-09006-cgm.
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Freeman received payment of only $5,000 toward the balance of the loan. Compl., ¶ 23.
Based on these allegations, Freeman sued the Debtor in the Supreme Court of the State of New
York (“State Lawsuit”) on November 10, 2014. Compl., ¶ 4. The State Lawsuit was stayed
upon Sessoms filing for bankruptcy.
On February 25, 2022, the Court signed Freemon’s Pre-Trial Order.2 At issue is whether
the money loaned to Nexus by Freeman is non-dischargeable under § 523(a)(2)(A) for monies
obtained by false pretenses, false representation, or actual fraud. On March 29, 2022, the Court
conducted an in-person trial. Freeman presented his case through his own testimony and the
Debtor offered limited testimony. For the reasons stated below, This Court finds that Freeman
has failed to demonstrate by a preponderance of the evidence that the loan should be excepted
from discharge under § 523(a)(2)(A).
Discussion
I. 	11 U.S.C. § 523(a)(2)(A)
Section 523(a)(2)(A) provides that an individual debtor will not be discharged from any
debt for money by “false pretenses, a false representation, or actual fraud, other than a statement
respecting the debtor’s or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). False
pretenses, a false representation, and actual fraud are three distinct concepts each sufficient to
deny a debtor a discharge. In re Chase, 372 B.R. 133, 136 (Bankr. S.D.N.Y. 2007) (cleaned up).
In a non-dischargeability action, the plaintiff must prove his case by a preponderance of the
evidence. Grogan v. Garner, 498 U.S. 279, 287 (1991).
2 Sessoms failed to confer with Freemon, and this Court directed Freemon to submit a Pre-Trial
Order without Debtor’s signature.
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In his complaint, Freeman seeks to have his debt deemed non-dischargeable under any of
the three provisions of § 523(a)(2)(A). Compl., ¶ 28. The Court will first examine whether
Freeman has proven his case under false pretenses.
i. 	False Pretenses
False pretense is a “conscious deceptive or misleading conduct calculated to obtain, or
deprive, another of property.” Gentry v. Kovler (In re Kovler), 249 B.R. 238, 261 (Bankr.
S.D.N.Y. 2000). A false pretense conveys an impression without an oral representation. In re
Chase, 372 B.R. 133, 136 (Bankr. S.D.N.Y. 2007). To establish false pretenses, the plaintiff
must show “(1) an implied misrepresentation or conduct by the defendant; (2) promoted
knowingly and willingly by the defendant; (3) creating a contrived and misleading understanding
of the transaction on the part of the plaintiff; (4) which wrongfully induced the plaintiff to
advance money, property or credit to the defendant.” Id. (citing In re Dobrayel, 287 B.R. 3, 13
(Bankr. S.D.N.Y. 2002)).
Freeman has not shown that the Debtor obtained his money through false pretenses.
Freeman did not show that the Debtor made implied misrepresentations. Rather, at trial Freeman
pointed to a single meeting where Freeman allegedly made an oral representation that he would
guarantee Freeman’s debt. Freeman also pointed to an unsigned loan agreement where the
Debtor promised to personally guarantee the debt. Oral and written statements are not actionable
as false pretenses under § 523(a)(2)(A). In re Chase, 372 B.R. 133, 136 (Bankr. S.D.N.Y. 2007).
These alleged misrepresentations are potentially liable under the “false representation” and
“actual fraud” prongs of § 523(a)(2)(A). The debt cannot be deemed non-dischargeable under
the “false pretenses” prong of § 523(a)(2)(A).
ii. 	False Representation
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A false representation occurs when the defendant “(1) [makes] a false or misleading
statement; (2) with the intent to deceive; and (3) in order for the plaintiff to turn over money to
the defendant.” In re Chase, 372 B.R. at 137. The plaintiff must also show that he justifiably
relied on the representation. In re Gonzalez, 241 B.R. 67, 71 (Bankr. S.D.N.Y. 1999).
At trial, Freeman testified that the Debtor made an oral representation that he would
personally guarantee Freeman’s debt. There was no dispute that Freeman never provided a
written personal guaranty. He never signed the loan document agreeing to personally guarantee
the debt. The Court did not hear any evidence that the oral statement was false when made or
that it was made with the intent to deceive.
It is undisputed that Sessoms did not execute a personal guarantee of Nexus’s obligations.
Joint Pre-Trial Order, ECF No. 24. Thus, Plaintiff concedes that his non-dischargeable claim is
one based on fraud—and not on contract. Under contract law, the Plaintiff has no remedy
because Sessoms never signed a personal guarantee on behalf of his principal—Nexus.
Generally, an agent is not personally liable for the obligations of his principal. Ashkir v. Wilson,
No. 98 Civ. 2632, 1999 WL 710788, at *9 (S.D.N.Y. Sept. 13, 1999). This principle is “based
upon New York’s Statue of Frauds, which requires ‘all promises to answer for the debt . . . of
another person . . . to be in writing and subscribed by the party to be charged.’” Id. (citing N.Y.
Gen. Oblig. Law § 5–701(a)(2)). “One who undertakes to guarantee a debt impliedly represents
that he intends to perform his obligation if called upon to do so.” In re Rieder, 178 B.R. 373,
377 (Bankr. S.D.N.Y. 1995). A guarantee is enforceable as long as it is signed by the guarantor.
European American Bank & Trust Co. V. Boyd, 516 N.Y.S.2d 714, 716 (2d Dep’t 1987).
Here, the Plaintiff has dressed up his claim as one based on fraud. A plaintiff “cannot
avoid the Statute of Frauds by arguing that the alleged oral promise was a misrepresentation of
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fact and that their claim is based on fraud.” Nelso Bagel Co. v. Moshcorn Realty Corp., 734
N.Y.S.2d 134, 135 (App. Div. 1st Dep’t 2001). Rather, “[w]hatever the form of the action at law
may be, if the proof of a promise or contract, void by Statue of Frauds is essential to maintain it,
there can be no recovery.” Lilling v. Slauenwhite, 535 N.Y.S.2d 428, 430 (App. Div. 2d Dep’t
1988) (quoting Dung. v. Parker, 52 N.Y. 494, 496 (1873)). 	In this case, the alleged oral promise
was void by the Statute of Frauds because Sessoms never signed the personal guarantee.
Plaintiff cannot avoid the Statue of Frauds by bringing a fraud claim.
Freeman also did not establish that he justifiably relied on the Debtor’s statements.
Freeman stated that he was initially hesitant to invest in Nexus. His concerns were allayed by
Sessoms allegedly stating that he would personally guarantee the debt. Freeman stated that he
would not have made the investment had Sessoms never told him that he would personally
guarantee the loan. After the meeting, Freeman invested $50,000 with Nexus.
In Field v. Mans, the Supreme Court stated that “[a]lthough the plaintiff’s reliance on the
misrepresentation must be justifiable. . . this does not mean that his conduct must conform to the
standard of the reasonable man. Justification is a matter of the qualities and characteristics of the
particular plaintiff, and the circumstances of the particular case, rather than of the application of
a community standard of conduct to all cases.” 516 U.S. 59, 70–71 (1995) (cleaned up).
While the Supreme Court lowered the standard from reasonable reliance to justifiable
reliance, the Plaintiff still fails to meet the lower standard. When there is no valid agreement, “it
cannot be said that plaintiff justifiably relied on—or was caused any injury by—any statements
made by defendant.” Hill v. Coates, 911 N.Y.S.2d 294, 295 (App. Div. 1st Dep’t 2010) (citing
Laub v. Faessel, 297 745 N.Y.S.2d 534 (App. Div. 1st Dep’t 2002). In this case there was no
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valid agreement for the Debtor to personally guarantee the debt. Thus, Plaintiff cannot show
justifiable reliance.
iii. Actual Fraud
Actual fraud “generally requires proving the ‘five fingers of fraud.’” In re Dobrayel, 287
B.R. 3, 12 (Bankr. S.D.N.Y. 2002). The five fingers require that:
1. 	The debtor made a false representation;
2. 	The debtor knew the representation was false at the time it was made;
3. 	The debtor made the false representation with the intent to deceive the
creditor;
4. 	The creditor justifiably relied on the representation; and
5. 	The creditor sustained a loss that was proximately caused by the false
representation.
In re Macias, 324 B.R. 181, 187 (Bankr. E.D.N.Y. 2004). 	As stated above, the Court did not
hear any evidence that the statement was false when made or that it was made with the intent to
deceive. Similarly, Freeman has not established justifiable reliance as there was no valid
agreement. The Court holds that this debt cannot be excepted from discharge under the “actual
fraud” prong of § 523(a)(2)(A).
II. Conclusion
For the foregoing reasons, the Court holds that Plaintiff’s debt is not excepted from discharge
under § 523(a)(2)(A). Nonetheless, the Court has denied the Debtor’s discharge under §§
727(a)(2)(A) and 727(a)(4)(A). See Adv. No. 21-09005-cgm. The Plaintiff shall submit a
proposed order within fourteen days of the issuance of this decision, directly to chambers (via E-
Orders), upon not less than two days’ notice to all parties, as required by Local Bankruptcy Rule
9074-1(a).
Dated: June 6, 2022
Poughkeepsie, New York
/s/ Cecelia G. Morris
_______________________
Hon. Cecelia G. Morris
U.S. Bankruptcy Judge
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