1. INTRODUCTION- Kirk Wickersham, an attorney, filed a Motion For Summary Judgement to establish the nondischargeability under 11 USC § 523(a)(2)(A) of a debt of debtor, David K. Smith, for legal fees which accrued before the bankruptcy was filed (Docket Entry 16, filed November 17, 1997). Wickersham alleges Smith misrepresented to him that certain collateral Smith 5 ABR 146      offered to secure payment of his fees was free and clear of liens, when it was not.

Although he is represented by competent counsel, Wickersham filed the summary judgment motion and supporting brief by himself. No opposition was filed by the defendant-debtor, David K. Smith, and he has admitted many facts by failing to answer a request for admissions.

Nonetheless, the motion will be denied without prejudice since there are material questions of fact which are not established in Wickersham's favor, and he has not adequately justified the legal basis for his recovery to the court.

     2. BACKGROUND- Wickersham represented Smith, Environmental Timber Company, Inc. (ETC), and Stanley M. Olson in a civil suit filed against them by Seaport Terminal Services in the Kodiak Superior Court. Smith and, apparently, Olson were officers of ETC.

Smith guaranteed the fees incurred by ETC and Olson, and agreed to pay for his own representation. $56,903.63 in litigation costs and expenses were incurred, of which only $10,000 has been paid, not by ETC, Olson or Smith, but by Woody Island Timber (WIT), a third party. The balance claimed is thus $46,903.63 (see, Count I of the Complaint Objecting to Discharge, Docket Entry 1).

Count II is based on a promissory note, given for a portion of the same fees as of November 18, 1994. The note has a face amount due of $22,888.73, with interest at 10½% on the unpaid balance. Count II indicates the balance was $26,101.93, with interest at $6.58 per day from March 20, 1996. This appears to be a subset of the fees claimed in Count I.

5 ABR 147      Wickersham alleges he took a security interest from ETC in two pieces of heavy equipment known as log loaders on November 18, 1994, to secure the past and future attorney fees incurred for representing Smith, Olson and ETC in the civil action in Kodiak. This was done in conjunction with Smith's execution, on behalf of ETC, of the promissory note. Wickersham does not explain to the court whether he is alleging that the security interest covers the $46,903.63, or the lesser amount claimed in Count II, $26,101.93, plus interest. No security agreement has been offered to explain the nature of the security interest.

The two log loaders belonged to ETC. They had been encumbered by a UCC security interest in favor of WIT in July 1993, but Smith told Wickersham in the summer of 1994, that ETC had a UCC-3 form releasing the two log loaders from WIT's security interest. See, Wickersham affidavit dated October 22, 1997, supporting his motion for summary judgment (the "Wickersham Affidavit"). Smith faxed a copy of the original release to Wickersham on August 4, 1994 (Exhibit B to the Wickersham Affidavit).

The release given by WIT to ETC was subsequently altered by Smith sometime in August 1994, by the unauthorized addition to the release of other collateral which WIT did not intend to be released. See, Exhibit C to the Wickersham Affidavit.

The release, with the unauthorized alteration was recorded on August 29, 1994. Several months later, on November 18, 1994, Wickersham received the promissory note for $22,888.73 and UCC-1 on the two log loaders from ETC. Smith, in his capacity as ETC's president, executed both the note and 5 ABR 148      UCC-1. See, Exhibits D and E to the Wickersham Affidavit.

Somehow WIT learned of the unauthorized addition to the UCC-3 (Exhibit C), and disputed it. There is no explanation of how WIT learned of the unauthorized alteration, what WIT did about it, what challenges it made to Wickersham's lien, or why it paid $10,000 to Wickersham for his release of his lien (Exhibit D to the Wickersham Affidavit).

Most importantly, there is no direct evidence that Smith knew his unauthorized alteration of the WIT UCC-3 impaired the release of the two log loaders, if it did. The court recognizes the difficulty in obtaining such direct evidence, but there is also lacking sufficient detail about the WIT situation to infer that Smith intentionally made the type of misrepresentation which is the basis for nondischargeability under 11 USC § 523(a)(2)(A).

The basis of the nondischargeability complaint is that: (a) Smith said that there were two log loaders which had no prior liens on them; (b) on the basis of that, Wickersham took a security interest in the log loaders to secure his attorney fees; and, (c) there were prior liens on the log loaders impairing Wickersham's collateral. The summary judgment motion is, however, somewhat ambiguous about the precise representations made.

Smith sent a copy of the release (Exhibit B to the Wickersham Affidavit) to Wickersham for review on August 4, 1997. The reason for sending the fax was not spelled out (¶ 14 of the Wickersham Affidavit). Smith recorded the altered release (Exhibit C) on August 29, 1994 (¶15). Wickersham obtained his UCC-1 and promissory note on November 18, 1994. There is no definite, 5 ABR 149      unambiguous evidence of what representations were made to Wickersham at each step, or precisely what representation Wickersham is relying on and when it was made. Was it the one on August 4, 1994, on November 18, 1994, or at some other date?

The court cannot infer from the facts presented by plaintiff, notwithstanding Smith's unauthorized alteration of the release, that Smith knew that Wickersham would not have the first security interest position in the two log loaders, or that he intentionally misrepresented the priority of the security interest.

     3. ANALYSIS-

     3.1. Standards for Summary Judgment- The standards for proving and defending a summary judgment motion were set out in Chitkin v Lincoln National Ins. Co., 879 FSupp 841, 848-49 (SD Cal 1995):

In considering a motion for summary judgment, the Court must examine all the evidence in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962). A moving party who bears the burden of proof at trial is entitled to summary judgment only when the evidence indicates that no genuine issue of material facts exists. Fed.R.Civ.P. 56(c); Celotex, 477 U.S. at 325, 106 S.Ct. at 2553-54. If the moving party does not bear the burden of proof at trial, he may discharge his burden of showing that no genuine issue of material fact remains by demonstrating that "there is an absence of evidence to support the non-moving party's case." Celotex, 477 at 325, 106 S.Ct. at 2554. The moving party is not required to produce evidence showing the absence of genuine issue of material fact on such issues, nor must the moving party support its motion with evidence negating the nonmoving party's claim. Lujan v. National Wildlife Fed'n, 497 U.S. 871, 885, 110 S.Ct. 3177, 3185, 111 L.Ed.2d 695 (1990); United Steelworkers v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir.), cert. denied, 493 U.S. 809, 110 S.Ct. 5 ABR 150      51, 107 L.Ed.2d 20 (1989). Instead, "the motion may, and should, be granted so long as whatever is before the District Court demonstrates that the standard for the entry of judgment, as set forth in Rule 56(c), is satisfied." Lujan, 497 U.S. at 885, 110 S.Ct. at 3187 (quoting Celotex, 477 U.S. at 323, 106 S.Ct. at 2553).

To make such the required showing, the nonmoving party must go beyond the pleadings to designate specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 325, 106 S.Ct. at 2553-54. Such evidence need not be in a form admissible at trial to avoid summary judgment. Id. The moving party is entitled to judgment as a matter of law if the nonmovant fails to make a sufficient showing of an element of its case with respect to which it has the burden of proof. Id.

The fact that the summary judgment motion was not contested does not give Wickersham a default victory. Henry v. Gill Industries, Inc., 983 F2d 943, 949-50 (9th Cir 1993) (although a local rule provided for granting of summary judgment if no opposition was filed, it did not override the requirements of FRCP 56).

Wickersham has not cleared the first hurdle to establishing his entitlement to summary judgment: "[ a] moving party who bears the burden of proof 5 ABR 151      at trial is entitled to summary judgment only when the evidence indicates that no genuine issue of material facts exists." Chitkin v Lincoln National Ins. Co. at 848.

     3.2. Material Facts Which Appear to be in Dispute- The court must interpret the facts in a light favorable to the nonmovant. Baxter v MCA, Inc., 812 F2d 421, 423 (9^th Cir 1987). Wickersham's motion, although unopposed, raises factual inferences which defeat the motion.

The factual background presented by Wickersham is incomplete in many respects. To draw inferences in favor of Wickersham, the court needs a fair presentation of the facts. Some of the fact questions (not necessarily the material facts) which come to mind are:

• How was WIT damaged? Did WIT lose anything by the unauthorized insertion? Or, was WIT's only burden to show that an unauthorized addition was made to its UCC-3 release?

• Why did WIT pay Wickersham $10,000, if it was not arguable that his lien did not prime WIT on the two log loaders?

• Did WIT have possession of the two log loaders in August 1994? In November 1997? (The Wickersham Affidavit, ¶ 13, says WIT took possession of the log loaders in July 1994, but does not say what happened to it after that; if possession was taken, why was the release nonetheless not valid as to the log loaders?)

• Does the security interest cover only the note with its $22,888.73 balance, plus interest, in Count II, or the $46,903.63 claim in Count I?

• What did Smith say to Wickersham and what did Wickersham know in August 1994 (¶ 14 of the Wickersham Affidavit says Wickersham received a fax copy of the UCC-1, Exhibit B, in August 1994, and told Smith to record it)?

• What was Smith's knowledge about the effect of the unauthorized modification of WIT's release on the portion of the release in which WIT consensually released the two loaders?

5 ABR 152      To establish nondischargeability under 11 USC § 523(a)(2)(A) in the 9^th Circuit the creditor must prove the following elements:

(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; [ and]
(5) that the creditor sustained the alleged loss and damage as the proximate result of the representations having been made.

In re Britton, 950 F2d 602, 604 (9^th Cir 1991).

From the facts presented by Wickersham in the motion for summary judgment, interpreting them favorably to Smith, I cannot conclude that Smith knew WIT still had a lien which would prime Wickersham on the two log loaders, and that he made statements to deceive Wickersham. It is important in deciding a § 523(a)(2)(A) proceeding to keep focused on the intention of the debtor at the time of the alleged misrepresentation or fraud. Compare, In re Anastas, 94 F3d 1280, 1286 (9^th Cir 1996) (dealing with alleged credit card fraud).

Thus, there are material fact issues: (a) what is the precise misrepresentation that Wickersham relied on; (b) when was it made; (c) was it a direct misrepresentation or done by silence; (d) did Smith know that the two log loaders were still encumbered by WIT's lien when he made representations to the contrary to Wickersham; and, (e) did Smith intend to deceive Wickersham by his statement about the status of the WIT liens?

     3.3. Questions of Law Which Must be Addressed- Some potential legal issues came to mind as I read Wickersham's brief. The brief does not touch 5 ABR 153      on them.

I am unsure whether Wickersham had a valid security interest under the facts, even if the unauthorized modification had not been made. The perceived weakness of his security interest against WIT's may have been because he had no valid security agreement, as opposed to arising out of Smith's unauthorized modification of the release.

No security agreement has been produced - only a note and a UCC-1 (Exhibits D and E to the Wickersham Affidavit). See, AS 45.09.105(a)(13), .201, .203(a)(2), .204(a), and .402; Anno: A.L. Schwartz, Construction and Effect of Art. 9, Dealing with Secured Transactions, Sales of Accounts, Contract Rights, and Chattel Paper, 30 ALR3d 9, § 15 (1970, supp 1997) (There is a split of authority as to whether a financing statement and promissory note fulfill the requirements of a "security agreement," usually depending on what these documents contain; where the financing statement is minimal, and the note does not mention a security interest, it has been held that this is not sufficient to constitute a "security agreement." See, Crete State Bank v Lauhoff Grain Co., 239 NW2d 789, 791 (Neb 1976)). See, also, Queen of the North, Inc. v LeGrue, 582 P2d 144, 148 (Alaska 1978).

Although Smith admitted the intent to grant a first lien to Wickersham in his answer (Docket Entry 5, ¶ 15), I am not certain (because of inadequate presentation of the facts and law) why Wickersham felt he had to bow to WIT's security interest. Was it because Wickersham's security interest was inadequately documented, rather than Smith's alteration of WIT's release? The court does not 5 ABR 154      know the answer because Wickersham has not explained why the release, even though altered, was not valid as to the two log loaders.

If Wickersham did have a valid security agreement, why did WIT's security interest on the two log loaders prime him? Why was the release void? Wickersham cites AS 11.46.505 and .510 regarding forgery and some case law not on point in support, but the court was not presented with case law applicable to the facts of this adversary proceeding, which involves a consensual release of some collateral to which an unauthorized alteration was made.

The complaint and the summary judgment make the blanket statement that the UCC-3 was "void," but Wickersham presented no case law to show the court that this is the law. The court is left with the question of whether the unauthorized alteration only is void as to the addition Smith made, or is the whole document void? E.g., what if two pieces of collateral were worth $1,000,000 and $1 respectively. Would the release of the $1,000,000 collateral be void if the debtor had unilaterally added the $1 collateral to the release? I do not know the answer.

It is plaintiff's obligation to show the court he is entitled to relief as a matter of law. He may be right, but the court should not have to do his research.

     4. CONCLUSION- A separate order denying summary judgment without prejudice will be entered.

DATED: December 24, 1997

HERBERT A. ROSS
Bankruptcy Judge