Mark v. Michel

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Case 2:07-ap-01204-TD Doc15_ Filed 07/30/07 Entered 07/31/07 15:32:49 Desc

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FILED
| JU. 30 2007
be ee
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~~ ENTERED

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6 GRACO INET OF GRUTON,

BY

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8 UNITED STATES BANKRUPTCY COURT

9 CENTRAL DISTRICT OF CALIFORNIA
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11 In re Case No. LA 06-16673 TD
12 JONATHAN MICHEL Adv. No. LA 07-01204 TD

Debtor.
+3 Chapter 7
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15 MEMORANDUM OF DECISION
16 PETER MARK,
inti DATE: July 12, 2007
M Plaintiff TIME: 10:00 a.m.
18 PLACE: Courtroom 1345
V.
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20 JONATHAN MICHEL,
21 Defendant.
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This matter was tried before me on July 12, 2007. Andrew Smyth of Smyth Law
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Offices appeared for plaintiff Peter Mark, and defendant Jonathan Michel appeared
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pro se. Upon consideration of the pleadings, evidence and closing argument, the

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Case 2:07-ap-01204-TD Doc15_ Filed 07/30/07 Entered 07/31/07 15:32:49 Desc
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following are my findings of fact and conclusions of law.
INTRODUCTION

Mark brought and prosecuted this action under 11 U.S.C. § 523(a)(2)(A)
requesting an exception to discharge of a debt created through his investment ina
radio show titled BUZZ L.A., which Michei had created and was producing under the
name Privilege Media Group International, Inc. (“PMG’).

Mark and Miche! met in 2000 and initially developed a personal relationship. In
that connection, Michel told Mark about Michel's personal background and business
activities and made various statements of fact about PMG and some of its business
activities. According to Mark, these conversations included oral statements that Michel
was the president and CEO of a corporation in good standing named PMG, that PMG
had a staff and office in Beverly Hills, and that Michel had received an MBA from
Harvard and owned condos in Boston and Los Angeles, although the discussions took
place at Michel’s home, never in a PMG business office in Beverly Hills.

Later, on March 17, 2001, Michel proposed a BUZZ L.A. business deal to Mark.
During their business discussion, Mark says he asked Michel for the identity of other
investors, accounting statements, and proof of PMG’s corporate status. Michel did not
provide any such information or documentation. Michel testified that he furnished to
Mark copies of the contract with the radio station and a budget totaling $250,000 for
the 26-episode BUZZ L.A. proposal. The discussion resulted in a “Deal Memo” signed
April 11, 2001 between Michel as “President & CEO” of PMG and Mark as “Investor.”
(Plaintiff's Exhibit 1). The Deal Memo stated that Mark would invest $10,000 in the
production of 26 BUZZ L.A. radio episodes, in return for which (1) Mark would receive
5% of gross sales and advertising revenue of the first 26 episodes and (2) PMG
personally guaranteed a minimum return of $10,000 on “the completion of the first 26

episodes or within six months from May 12, 2001, whichever shall come first.”

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(Plaintiffs Exhibit 1). Mark made his investment, about $10,000, though he did not
receive any of the investor, financial or corporate status information he had requested
from Michel.

On May 10, 2001, again at Michel's home, Michel informed Mark that an
additional $3,000 was needed for the radio show, which was to be broadcast by
Infinity Broadcasting Corporation (“Infinity”) on FM radio station KLSX. (Defendant's
Exhibit B). Despite being unsure at the time of the soundness of his initial $10,000
investment, Mark testified that out of concern that BUZZ L.A. would not be aired, he
agreed to invest the additional $3,000. Mark’s money was given directly to Jeffry
Martini, the Director of Sponsored Programs at Infinity, although there was a conflict in
the testimony as to whether Mark or Michel delivered the payment to Martini.
(Defendant's Exhibit B).

Mark also testified that Michel did not tell him that PMG lost its Nevada
corporate status in 1998 or that had PMG closed its Beverly Hills office in 1998.
Michel's testimony generally contradicts Mark’s. Apparently, all negotiations between
the parties took place in Michel's home.

Ultimately, only four episodes of BUZZ L.A. were produced and aired on KLSX.
At that point, the funds from Mark’s investment had been depleted and other means of
financing a 26-episode project did not materialize.

The shortfall in investor funds resulted in a deteriorating the relationship
between Michel and Mark. Michel tried to find other investors to sustain the project
and repay Mark, but was unable to. While between $800 and $900 was raised from
advertising revenue through BUZZ L.A., Mark did not receive his agreed percentage
return. Apparently, Michel spent the money in his efforts to sustain the BUZZ L.A.
project, which ended in failure after 4 episodes, including later lawsuits over unpaid

costs of the project.

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Mark received neither his percentage of the gross sales and advertising
revenue nor the guaranteed return of his $10,000 investment.

Essentially, the evidence here shows that Mark’s contractual rights were
enforceable, pre-bankruptcy, against Michel personally. This is for the reason that
Michel, in effect, entered into the contract with Mark as a sole proprietor who was
operating under the PMG name. PMG, in effect, was a fictitious name in light of the
1998 suspension of PMG’s corporate franchise.

While the of affairs leads to some confusion, | conclude that nothing in the
eviderice gave Mark any reasonable or justifiable basis to assume anything about the
financial ability of either Miche! or PMG to sustain a 26-episode BUZZ L.A. project or
to assume that the funds were available from any source to sustain the project.

| find and conclude that Michel's testimony was more persuasive as to the
material facts of this dispute. | also find that Mark failed to prove by a preponderance
that Michel misrepresented any material fact necessary to sustain Mark’s claim of
fraud sufficient for nondischargeability under 11 U.S.C. § 523(a)(2)(A).

DISCUSSION

According to 11 U.S.C. § 523(a)(2)(A), a discharge does not “discharge an
individual debtor from any debt for money . . . to the extent obtained by false
pretenses, a false representation, or actual fraud.” The policy of § 523(a)(2)(A) is to

ensure that “an honest, but unfortunate debtor obtains a fresh start, while a dishonest

debtor does not benefit from his wrongdoing.” Citibank v. Eashai (In re Eashai), 87
F.3d 1082, 1086 (9th Cir. 1996). To make a prima facie case under this section, the
plaintiff must establish all of the following:

1. a misrepresentation of fact by the debtor,

2. that the debtor knew at the time to be false,

3. that the debtor made with the intention of deceiving the creditor,

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4. upon which the creditor justifiably relied, and
5. that was proximate cause of the damage to the creditor.

Cossu v. Jefferson Pilot Sec. Corp. (In re Cossu), 410 F.3d 591, 596 (9th Cir. 2005)

(citing In re Britton, 950 F.2d 602, 604 (9th Cir. 1991)). Each of these factors must be
proven by the plaintiff by a preponderance of the evidence. American Express Travel
Related Servs. Co. v. Hashemi (In re Hashemi), 104 F.3d 1122, 1125 (9th Cir. 1996)
(citing Grogan v. Garner, 498 U.S. 279, 291 (1991)).

1. Misrepresentation. The misrepresentation of fact by the debtor to the

creditor must be material. Berr v. FDIC (In re Berr), 172 B.R. 299, 309 (B.A.P. 9th Cir.

1994) (holding misrepresentations on the debtor’s credit application were immaterial
as they did not affect the debtor's credit worthiness). A “fact is material if there is a
substantial likelihood that its disclosure would have been considered significant by a

reasonable investor.” Basic v, Levinson, 485 U.S. 224, 224 (1988). “In order fora

representation regarding future performance to be actionable under § 523(a)(2){A), a
debtor must lack an intent to perform when the promise was made.” Donaldson v.

Hayes (In re Hayes), 315 B.R. 579, 587 (Bankr. C.D. Cal. 2004) (citing Anastas v. Am.

Sav. Bank (In re Anastas), 94 F.3d 1280, 1285 (9th Cir. 1996)).

| do not find sufficient evidence here to sustain Mark’s claim that Michel
misrepresented the financial ability of either PMG or Michel personally to sustain the
BUZZ L.A. project or to repay Mark. Similarly, | conclude that, on balance, Mark's
evidence is insufficient to sustain a claim that Michel, either individually or through
PMG, made any promise to Mark that Michel did not intend to perform at the time he
made the promise. Rather, the evidence proves more conclusively that Mark’s
investment of funds in the BUZZ L.A. project was based on an informal, largely oral,
non-detailed understanding between Mark and Michel that did not address adequately

where the necessary funds for the 26-episode project were to come from or whether

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Michel was able to repay Mark’s investment from available assets in the event the
BUZZ L.A. project failed. The “deal” clearly was highly speculative and poorly thought
out financially on Mark’s part. The project failed perhaps due to the lack of adequate
funding. In the end, however, and at best, Mark's evidence proves no more than
breach of contract by Michel, not fraud. There is no convincing evidence Michel
misrepresented his financial condition. Breach of contract is insufficient to support a
judgment of nondischargeability.

Mark presented no evidence or testimony that suggested at the time of the

agreement that PMG or Michel did not intend to perform. See Donaldson, 315 B.R. at

587. Furthermore, while Mark's testimony concerning PMG’s corporate status and
office with a staff in Beverly Hills may have created an image of financial ability, such
representations, even if proven, do not support Mark’s claim here. There is no
evidence that Michel misappropriated Mark’s investment, or that the four episodes
produced deviated from Mark’s reasonable expectations of the BUZZ L.A. program.
Any corporate representations regarding PMG, even if inaccurate, were not material to
Mark’s investment decision. To the contrary, there were no material
misrepresentations regarding BUZZ L.A., the project that Mark invested in.

2. Proximate cause of damages. Any recovery for fraud under 17 U.S.C. §
523(a)(2)(A) requires proof that the plaintiff suffered damages as a proximate result of
material misrepresentations. Here, Mark presented evidence to show a variety of his
subjective understandings concerning Michel and PMG. Mark’s understanding may
have resulted from Michel’s puffing, but Michel did not make any financial
representation or promise to Mark than repayment. The evidence does not support a
finding or conclusion that Michel misrepresented any material fact relating to the BUZZ
L.A. project. Mark failed to prove by a preponderance of the evidence that any

material misrepresentation BUZZ L.A. was the proximate result of Mark’s loss. In

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actuality, Mark lost his money due to (a) the failure of BUZZ L.A. and (b) PMG’s and/or
Michel's breach of contract.
CONCLUSION
Mark has failed to prove any basis for nondischargeability under 11 U.S.C. §
523(a)(2)(A) of any debt of Michel to Mark.

SO ORDERED.

DATED: 7 3 elo 2

Kj deen
Dae Suche

United States Bankruptcy Judge

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NOTICE OF ENTRY OF JUDGMENT OR ORDER
AND CERTIFICATE OF MAILING
TO ALL PARTIES iN INTEREST LISTED BELOW:
1. You are hereby notified that a judgment or order entitled:
MEMORANDUM OF DECISION

was entered on d | DAGa

2. | hereby certify that | mailed a true copy of the order or judgment to the persons
and entities listed below on n\ alot
Defendant

Jonathan Michel
4638 Blackrock Ave
La Verne, CA 91750

Plaintiff

Peter Mark

P.O. Box 3606
Covina, CA 91722

Plaintiff's Attorney

Andrew Edward Smyth
Smyth Law Office

4929 Wilshire Blvd Ste 605
Los Angeles, CA 90010

Chapter 7 Trustee

Alfred H. Siegel

Siegel, et al.

15233 Ventura Blvd 9" Floor
Sherman Oaks, CA 91403

U.S. Trustee

Office of the U.S. Trustee
Ernst & Young Plaza

725 S. Figueroa St., 26" Floor
Los Angeles, CA 90017

Dated: 1 7 o> vn =

/ “ Clerk

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