3 ABR 311 UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re: Case No. A92-00602-DMD	)
	)
MICHAEL. R. JOHNSON and	)
LAURI B. JOHNSON,	)
Debtors.	)
____________________________________	)
JIM RICE,	)	Bancap No. 92-3123
Plaintiff,	)	Adv. No. A92-00602-001-DMD
v.	)
	)
MIKE JOHNSON,	)
Defendant.	)
____________________________________	)

MEMORANDUM DECISION AND ORDER

Introduction

     This is a complaint for exception to discharge, brought pursuant to 11 U.S.C. § 523(a)(2),(4), and (6). This court has jurisdiction over the claim pursuant to 28 U.S.C. § 157(a)(2)(I). I find for the plaintiff.

Factual Background

     Jim Rice (Rice) is a fireman in Fairbanks. He was active in the Alaska Fur Ranchers Association. There he met the defendant, Mike Johnson (Johnson). Johnson is a civil engineer who lives in Nikiski. The men met through their association with the Alaska Fur Ranchers. They had some business dealings in early 1988. Johnson traded an airplane, a Cessna 170, to Rice in exchange for six lynx, several foxes, and some nest boxes. This transaction was concluded to the satisfaction of both parties.

     Rice later filed a voluntary petition for a Chapter 7 bankruptcy on June 17, 1988, Case No. F88-00390. On Schedule B-2, personal property, Rice listed as assets: "Approximately 100 ranch foxes -- $4,000.00," "Small tools -- $400.00," and "150 wire cages --

   3 ABR 312 $1,500.00 estimate." On Schedule B-4, exemptions, Rice claimed as exempt the small tools for a value of $400.00. He did not exempt any of the other assets. Rice's bankruptcy case spanned several years. Rice claims that neither the trustee nor the Alaska Resources Corporation, a secured creditor in the sum of $100,000.00, were interested in running the fox farm. However, no formal order of abandonment was obtained. Rice's initial attorney, Ann Rhian, passed away during the course of the proceedings, and Rice was later represented by Ken Ringstad. A trustee's report of no distribution was entered on April 6, 1992, in Rice's case, and a final decree closing the case was entered on April 13, 1992.

     In the fall of 1988, Rice contacted Johnson regarding possible purchase of the foxes, their cages, and fox farm equipment. Johnson offered to trade some property on Montana Creek, near Talkeetna, for the foxes. Johnson represented that the Montana Creek property had a value of $15,000.00, and there was about $6,000.00 owed against it. Rice responded that he was not interested in the Montana creek property and asked if Johnson had other property. Johnson told Rice that he knew of some other property, Lots 29 and 69 of Dow Island Subdivision, located on the Kenai River. He said that the owner of these lots might be interested in trading properties. Johnson stated he would trade property of his valued at approximately $40,000.00 for the Dow Island lots. Johnson stated that the Dow Island lots had a value of at least $42,000.00 and would have a lien of approximately $13,200.00 against them after Johnson's property was traded. Johnson sent Rice a plot plan of the Dow Island lots with the value of the lots written in hand. Rice again told Johnson that the Dow Island property was not enough and asked what else he had. Johnson's partner, Ron Bell, offered a lot in the Riverview Hills Subdivision in addition to the two prior lots. The Riverview Hills lot allegedly had a value of $18,000.00.

     Rice and Johnson agreed to trade the two Dow Island lots and the Riverview Hills lot for the foxes, cages, and equipment. As detailed in a sale agreement never executed by the parties, Johnson was to receive 127 live foxes of mixed ages, 180 pelter cages, 135 breeder cages, 30 transport kennels, one ton of fox food, and assorted equipment for fox farming. Mr. Rice was to get title to the parcels of real property and assume an existing obligation of approximately $13,200.00. Rice was also

   3 ABR 313 to pay half the closing costs on the lots.

     On November 17, 1988, defendant Johnson signed an earnest money agreement for Lots 29 and 69, Dow Island Subdivision. This agreement reflects that title of the property was to be in the name of Jim Rice. He paid $100.00 in earnest money but did not close the transaction.

     In early January 1989, Rice told Johnson that he must pick up the foxes or Rice would start charging Johnson costs for feeding and care of the foxes. Johnson agreed to pick up the foxes and was to bring the paperwork for transfer of the real property with him.

     On January 22, 1989, Johnson and his partner, Bell, arrived in Fairbanks and picked up the foxes, cages, feed, and equipment. Johnson provided no paperwork and said it would be coming later. Rice gave Johnson a check made payable to Johnson in the amount of $1,498.00 as Rice's share of the closing costs. After loading the foxes, cages and feed for several days, Johnson took possession and returned home around January 26, 1989. Johnson promptly took the check to the title company and used it for his share of the closing costs. Shortly thereafter, Transamerica Title sent Rice documents for closing on the Dow Island lots and requested a check in the sum of $1,897.59.

     Upon receipt of the title company documentation, Rice discovered that Johnson had not traded his equity in other property for the Dow Island property. Instead, Johnson had purchased the Dow Island property with money given by Rice. Johnson represented his trade equity to be the sum of $28,800.00. This equity, combined with the alleged equity in the Riverview Hills lot, was to total $46,800.00. According to Rice, however, the true equity, based on assessed valuations, was about $8,300.00.

     Johnson retained the foxes for a time and did very poorly with them. He later gave away all of the foxes, their feed, and most of their equipment to another rancher before filing bankruptcy.

Analysis

     11 U.S.C. § 523(a) (2) (A) excepts from discharge money, property, or services to the extent obtained by "false pretenses, a false representation, or actual fraud. . . ." The elements necessary to

3 ABR 314 establish fraud are:

(1)	[that] the debtor made the representations;
(2)	that at the time he knew they were false;
(3)	that he made them with the intention and purpose of deceiving the creditor;
(4)	that the creditor relied on such representations;
(5)	that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.

In re Kirsh, 973 F.2d 1454, 1457 (9th Cir. 1992). The creditor must establish these elements by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 111 S. Ct. 654, 112 L.Ed. 755 (1991).

Rice has established the first four elements of the Kirsh criteria. First, the debtor represented that he was trading real estate with an equity of approximately $46,800.00 when in fact there was no such equity. Nor had he traded other property for the Dow Island lots, as represented to Rice. Johnson knew his statements were false. He made them with the intent of deceiving Rice and obtaining possession of the foxes and their accoutrements. Rice relied on the representations.

Damages, however, as a proximate result of the misrepresentations are more problematic. As noted by the plaintiff, this court has endorsed the measure of damages standard set forth in the Restatement. In re May, 1 ABR 488, 491-492, (Bankr. D. Alaska 1991).

§ 549. Measure of Damages for Fraudulent Misrepresentation.
(1) The recipient of a fraudulent misrepresentation is entitled to recover as damages in an action of deceit against the maker the pecuniary loss to him of which the misrepresentation is a legal cause, including
(a) the difference between the value of what he has received in the transaction and its purchase price or other value given for it; and

(b) pecuniary loss suffered otherwise 3 ABR 315 as a consequence of the recipient's reliance upon the misrepresentation.
(2)The recipient of a fraudulent misrepresentation in a business transaction is also entitled to recover additional damages sufficient to give him the benefit of his contract with the maker, if these damages are proved with reasonable certainty.

Restatement (Second) of Torts, § 549 at 108. Alaska case law supports the proposition that damages arising from fraud cannot be speculative. Alaska Ins. Co. v. Movin' On Const., Inc., 718 P.2d 472, 474 (Alaska 1986).

Rice received nothing out of this transaction. He is entitled to the value given, in this case the value of the foxes, cages, feed, and equipment. What is that value? Is it the $46,800.00 in real property equity? Is it the $5,900.00 placed on the assets in Rice's bankruptcy schedules? Is it the nearly $60,000.00 value listed in Johnson's FmHA application? Or is it zero as witnessed by Johnson's abandonment of the property after sustaining losses from his ranch operation?

I find the value of the property to be the sum of $5,900.00 for several reasons. First, I do not regard Rice's damage testimony as credible. His rationale for listing a market value of $5,900.00 in his bankruptcy schedules for the property and then trading that property for $46,800.00 in equity several months later is nonsensical. Rice's values change like the wind, depending on with whom he is talking at any given moment. Secondly, both Rice and Johnson went bankrupt while engaged in the fox ranching business. This diminishes my estimation as to the real value of the property. Finally, I do not believe Rice's rationale for trading the property was truthful. He stated he went bankrupt because of a divorce. The schedules from his bankruptcy reveal a loan of $100,000.00 from the Alaska Resources Corporation for his ranch operation with but $20,000.00 of secured property remaining. Why was there a deficit of $80,000.00 from this profitable business? I conclude Rice knew the business was unprofitable and that the property had little value. His divorce had nothing to do with his getting out of the business. The value of the foxes and related property is the sum of

   3 ABR 316 $5,900.00. Additionally, Rice is entitled to the funds advanced as closing costs in the sum of $1,498.00.

      I further find that Rice suffered no consequential damages and has failed to establish damages in excess of $7,398.00 with reasonable certainty. Rice is, however, entitled to interest at the state rate of 10.5% from January 26, 1989, to the date judgment is entered herein. In re Der, 113 B.R. 218, 232 (Bankr. D. Md. 1989); Norte & Co. v. Huffines, 416 F.2d 1189, 1191 (2d Cir. 1969), cert. denied, 397 U.S. 989 (1970); American Timber & Trading v. First Nat'l Bank of Ore., 690 F.2d 781, 784 (9th Cir. 1982).

      Rice is entitled to only one remedy. His remaining counts will be dismissed with prejudice.

Conclusion and Order

Rice and Johnson deserve each other. Each has demonstrated a remarkable ability for deception when given the appropriate opportunity. Rice, however, was outhornswaggled by Johnson on the transaction and is entitled to some damages.

Therefore, IT IS ORDERED:

Let judgment be entered and docketed accordingly.

DATED: February 4, 1994.

BY THE COURT
DONALD MacDONALD IV
United States Bankruptcy Judge