Case DOT Doc 1 Filed 09/22/11 Entered 09/22/11 17:34:47 Desc Main Document Page 1 of 10

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1 Document Page 1 of 10 UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF VIRGINIA Richmond Division IN RE: ALLEN MEAD FERGUSON and MARY RUTHERFOORD M. FERGUSON, Debtors. UNION FIRST MARKET BANK, v. Plaintiff, ALLEN MEAD FERGUSON and MARY RUTHERFOORD M. FERGUSON, Defendants. Chapter 11 Case No DOT Adversary Proceeding No. COMPLAINT FOR DETERMINATION OF DISCHARGEABILITY OF CERTAIN DEBTS Union First Market Bank ( Union First Market or the Bank, by counsel, for its Complaint against Allen Mead Ferguson and Mary Rutherfoord M. Ferguson (the Debtors, objecting to the grant of their discharge pursuant to 523 of Title 11, United States Code (the Bankruptcy Code, states as follows: Vernon E. Inge, Jr. (Va. State Bar No Corey S. Booker (Va. State Bar No LECLAIRRYAN, A PROFESSIONAL CORPORATION Federal Reserve Bank Building, 16th Floor 701 East Byrd Street (ZIP Post Office Box 2499 Richmond, Virginia Telephone: Facsimile: Vernon.Inge@LeClairRyan.com Corey.Booker@LeClairRyan.com Counsel for Union First Market Bank, Creditor

2 Document Page 2 of 10 Jurisdiction 1. The Debtors filed a voluntary petition under Chapter 11 of the Bankruptcy Code in this Court on March 31, 2011, commencing this case (the Case. 2. The Case was converted to a case under Chapter 7 of the Bankruptcy Code on June 28, The Court has jurisdiction over this proceeding pursuant to 28 U.S.C and 157. Venue is proper pursuant to 28 U.S.C This proceeding is a core proceeding pursuant to 28 U.S.C. 157(b(2(J. 4. The statutory predicates for the relief requested in this proceeding are 523(a of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure Background 4. On August 14, 2009 Allen Ferguson and Mary R. M. Ferguson entered into a Promissory Note with First Market Bank for the principal amount of Seven Hundred Ninety- Nine Thousand Two Hundred Fifty One Dollars and Thirty Five Cents ($799, (the August 2009 Note. The August 2009 Note had a maturity date of April 30, Upon Default, the August 2009 Note provided for an 18% interest rate and that the makers would pay all of the Bank s fees in collecting the amounts due under the Note, including the Bank s attorneys fees and all other collection expenses. A copy of the August 2009 Note is attached to this Complaint as Exhibit A. 5. The August 2009 Note constituted a renewal and revision of a Promissory Note dated February 27, 2006 from Allen Mead Ferguson to First Market Bank (the Original Note. First Market Bank had renewed the Original Note several times, including on December 28, 2

3 Document Page 3 of , December 11, 2007, June 30, 2008, and January 15, The Original Note was guaranteed by Mary R. M. Ferguson. 6. The August 2009 Note matured on April 30, 2010 and has not been paid in full. 7. The Debtors have defaulted on the August 2009 Note by failing to pay it off at maturity. 8. On January 6, 2011, Union First Market Bank obtained a judgment Order against the Debtors for failure to pay the August 2009 Note in the amount of $746,650.04, plus interest at the default rate of 18% from January 6, 2011 to present, attorneys fees in amount of $2,418.34, costs in the amount of $389.00, plus any future attorneys fees, costs, and expenses in executing on the Order. A copy of the Order is attached as Exhibit B. 9. As part of the process for renewing the Promissory Note, the Debtors provided signed personal financial statements to Union First Market Bank on several occasions, including on April 2009 (the April 2009 Statement, on April 21, 2010 (the April 2010 Statement, and on May 18, 2010 (the May 2010 Statement. The Debtors also provided signed personal financial statements to the Bank prior to 2009 (the Earlier Statements. 10. In the April 2009 Statement, the Debtors represented that they had approximately $2,500, in readily marketable securities from Virginia tax-free bonds ($1,500, and New York Stock Exchange stocks ($1,000, A copy of the April 2009 Statement is attached as Exhibit C. The Debtors did not indicate that any of the readily marketable securities were pledged to any other creditor. In the April 2009 Statement, the Debtors also indicated having $1,000, in deferred compensation. 11. In the April 2010 Statement, the Debtors represented that they had approximately $2,300, in readily marketable securities from Virginia tax-free bonds ($1,500, and 3

4 Document Page 4 of 10 New York Stock Exchange stocks ($800, A copy of the April 2010 Statement is attached as Exhibit D. The Debtors did not indicate that any of the readily marketable securities were pledged to any other creditor. In the April 2010 Statement, the Debtors also indicated having $1,000, in deferred compensation. 12. In the May 2010 Statement, the Debtors represented that they had approximately $3,700, in readily marketable securities from United States Federal Agency Bonds ($200, , Virginia tax-free bonds ($2,000,000.00, and New York Stock Exchange listed commodities ($1,500, A copy of the May 2010 Statement is attached as Exhibit E. The Debtors indicated that the readily marketable securities were not pledged to any other creditor. In the May 2010 Statement, the Debtors also indicated having $1,000, in deferred compensation. The May 2010 Statement is not signed by Mrs. Ferguson. 13. The April 2009 Statement, which is signed by both Debtors states: To: First Market Bank The information contained in this Statement is provided to induce you to extend or to continue the extension of credit to the undersigned or to others upon the guarantee of the undersigned. The undersigned acknowledge and understand that you are relying on the information provided herein in deciding to grant or continue credit or to accept a guarantee thereof. Each of the undersigned represents, warrants, and certifies that the information provided herein is true, correct, and complete. Each of the undersigned agrees to notify you immediately and in writing of any change in the name, address, or employment and of any material adverse change (1 in any of the information contained in this statement, or (2 in the financial condition of any of the undersigned, or (3 in the ability of the undersigned to perform its (or their obligations to you. In the absence of such notice of a new and full written statement this should be considered a continuing statement and substantially correct. If the undersigned fail to notify you as required above, or if any of the information herein should prove to be inaccurate or incomplete in any material respect, you may declare the indebtedness of the undersigned or the indebtedness guaranteed by the undersigned, as the case may be, immediately due and payable. You are authorized to make all inquiries you deem necessary to verify the accuracy of the information contained herein and to determine the credit worthiness of the undersigned. The undersigned authorize any personal or consumer reporting agency to give you any information it may have on the undersigned. Each of the undersigned authorize you to answer 4

5 Document Page 5 of 10 questions about your credit experience with the undersigned. As long as any obligation or guarantee of the undersigned to you is outstanding, the undersigned shall supply annually an updated financial statement. This personal financial statement and any other financial information that the undersigned give you shall be your property. The other financial statements the Debtors gave Union First Market contained similar language. 14. Union First Market relied on the representations made by the Debtors in the April 2009 Statement and in the Earlier Statements in order to continue to extend credit to the Debtors. 15. The Debtors Schedules filed in this Case do not list any readily marketable securities as an asset of the Estate, with the exception of the Dreyfus Money Market (Class A held by Morgan Keegan and valued at $ The Debtors Schedules filed in this Case do not list any deferred compensation for either Debtor. 17. The Debtors Statement of Financial Affairs ( SOFA explains that Regions Bank had a lien on a securities account of the Debtors held by Morgan Keegan and that Regions Bank liquidated securities having a value of approximately $1,580, in May At the Debtors 341 Meeting of the Creditors in their Chapter 11 Case, on May 6, 2011, Allen Ferguson admitted that the Debtors had falsely represented to numerous banks and possibly other creditors that they owned a $2,000, bond portfolio, which they did not own. Similar admissions have been made by Mr. Ferguson, under oath, on other occasions. 19. As for Union First Market, Allen Ferguson admitted at the 341 Meeting that the bond account that he represented as having approximately $2,000, on his personal financial statements to the Bank simply did not exist. Likewise, Mr. Ferguson admitted the deferred compensation in the amount of $1,000, did not exist. (See Transcript of 341 Meeting 55:5-25, 56:

6 Document Page 6 of Union First Market has properly filed its Proof of Claim [Claim No. 18] evidencing its $781, claim against the Debtors. The amount of Union First Market s Claim does not include attorneys fees and costs. Relief Requested: Objection to the Debtor s Discharge 21. The allegations set forth in paragraphs 1 through 20, above are realleged as if fully restated herein. 22. Pursuant to 523(a(2(B of the Bankruptcy Code, a discharge pursuant to 1141 does not discharge an individual debtor of any debt: for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by... (B use of a statement in writing (i that is materially false; (ii respecting the debtor s or an insider s financial condition; (iii on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv that the debtor caused to be made or published with the intent to deceive. 11 U.S.C. 523 (a(2(b. the Debtor. 23. The August 2009 Note is a renewal of credit that Union First Market provided to 24. In order to obtain the renewal, the Debtors provided the April 2009 Statement to Union First Market. 25. The April 2009 Statement was materially false because it stated the Debtors had $2,500, in readily marketable securities from Virginia tax-free bonds ($1,500, and New York Stock Exchange stocks ($1,000, and $1,000, in deferred compensation which the Debtors did not have. The April 2009 Statement is also materially false because it stated the readily marketable securities were not pledged to any creditor, when in fact, to the extent the Debtors had any readily marketable securities, they were pledged to Regions Bank. 6

7 Document Page 7 of The April 2009 Statement was supposed to provide Union First Market with a description of the Debtors financial condition as of the date of the statement so that Union First Market could rely on the April 2009 Statement. 27. Union First Market required the Debtors to provide the April 2009 Statement to it and reasonably relied on the April 2009 Statement in determining whether to renew the credit to the Debtors. 28. The Debtors provided April 2009 Statement to Union First Market with the intent to deceive Union First Market. 29. On several other occasions prior to the April 2009 Statement, the Debtors provided the signed Earlier Statements to the Bank that contained similar materially false statements regarding the Debtors financial position with the intent to deceive Union First Market. Union First Market required the Debtors to provide the Earlier Statements and reasonably relied upon the Earlier Statements in its decisions to renew the Original Note and continue to extend credit to the Debtors. 30. The Debtors provided the Earlier Statements to Union First Market with the intent to deceive Union First Market. 31. The April 2010 and the May 2010 Statements were additional statements that the Debtors provided to Union First Market. 32. The April 2010 Statement is materially false because it stated the Debtors had $2,300, in readily marketable securities from Virginia tax-free bonds ($1,500, and New York Stock Exchange stocks ($800, and $1,000, in deferred compensation which the Debtors did not have. The April 2010 Statement is also materially false because it 7

8 Document Page 8 of 10 stated the readily marketable securities were not pledged to any creditor, when in fact, to the extent the Debtors had any readily marketable securities, they were pledged to Regions Bank. 33. The May 2010 Statement signed by Mr. Ferguson is also materially false because it stated the Debtors had approximately $3,700, in readily marketable securities from United States Federal Agency Bonds ($200, , Virginia tax-free bonds ($2,000, and New York Stock Exchange listed commodities ($1,500, and $1,000, in deferred compensation, which the Debtors did not have. The May 2010 Statement is also materially false because it stated the readily marketable securities were not pledged to any creditor, when in fact, to the extent the Debtors had any readily marketable securities, they were pledged to Regions Bank. 34. Union First Market s loss was the proximate result of materially false financial statements the Debtors provided to the Bank. 35. Because the Debtors provided the false April 2009 Statement and the Earlier Statements to Union First Market with the intent to deceive Union First Market and Union First Market reasonably relied on those statements in providing a renewal to a credit, grounds exist pursuant to 523(a (2(B of the Bankruptcy Code for this Court to except from a discharge of the Debtors the debts owed to Union First Market. WHEREFORE, Union First Market Bank, by counsel, respectfully requests that the Court enter judgment against the Debtors ordering that any and all debts of the Debtors to Union First Market Bank is not dischargeable and granting such other and further relief as is just under the circumstances. 8

9 Document Page 9 of 10 Vernon E. Inge, Jr. (Va. State Bar No Corey S. Booker (Va. State Bar No LECLAIRRYAN, A PROFESSIONAL CORPORATION Federal Reserve Bank Building, 16th Floor 701 East Byrd Street (ZIP Post Office Box 2499 Richmond, Virginia Telephone: / Facsimile: / or Vernon.Inge@LeClairRyan.com Corey.Booker@LeClairRyan.com Counsel for Union First Market Bank, Creditor. UNION FIRST MARKET BANK /s/ Corey S. Booker Counsel 9

10 Document Page 10 of 10 CERTIFICATE OF SERVICE I hereby certify that on the 22nd day of September, 2011, a true and correct copy of the foregoing Complaint To Determine Dischargeability Of Certain Debts was served electronically and/or by first-class, postage-prepaid, U.S. mail upon the following: Allen Meade Ferguson and Mary Rutherfoord M. Ferguson 611 Three Chopt Road Richmond, Virginia Debtors Roy M. Terry, Jr., Esq. DURRETTECRUMP PLC 1111 East Main Street, 16th Floor Richmond, Virginia Counsel for Debtors W. Clarkson McDow, Jr. OFFICE OF THE UNITED STATES TRUSTEE 701 East Broad Street, Suite 4304 Richmond, Virginia United States Trustee /s/ Corey S. Booker Corey S. Booker 10