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untanglingwebs
El Supremo
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| Ms. Purcell stated they are trying to explain the FAEC has been involved in this activity, but has also been the neighborhood representative. In terms of that, they can provide a breakdown of exactly what it is costing the City to implement the program. Councilman Horrigan made the motion to postpone this item to Special Affairs because he does believe the City Council is prepared to act on this resolution today.(there had been a previous motion to postpone this item to Special Affairs) |
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Thu Jun 14, 2018 1:47 pm |
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untanglingwebs
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Councilwoman Cook asked Ms. Purcell what the City of Flit's obligation is under Section 108 loans . Is the City obligated to secure those loans? Ms. Purcell stated the City retains a portion of the $6 million in case anyone the City loans money to defaults, the City uses that retainage to pay on their behalf. If the City were to loan all $6 million, the City would be responsible, therefore, it cannot loan out the full $6 million, because of that risk (the risk of someone defaulting on their loan). Councilwoman Cook wants to know if the City has done that in the past. Ms Purcell stated she believes so.
Councilwoman Cook stated she is not sure the City has secured the 108 loans in the past and that is why she wanted that information. Her concern is, in the past the City had not secured the loans. Ms. Purcell stated they are very specific and the loan agreement agreement sets specified security on behalf of the City. Councilwoman Cook stated, at the time, she was not aware of it and other council may not have been aware the funds could be secured in the manner just described by Ms. Purcell. She(Cook) does not believe the City has done that in the past and she has some very real concerns about the City accepting the 108 loan unless there is some security. She does not believe the taxpayers should be on the hook to secure these loans when those acquiring the loans default. |
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Thu Jun 14, 2018 2:13 pm |
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untanglingwebs
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Councilman Buchanan stated he appreciates the presentation ans is not surprises most of the Enterprise Community Activities are occurring in the 1st Ward. He believes, because Ms. Dunlap and Ms. Purcell could not delineate the differences between these two entities because of past mishandling of money, it is not their fault. With the reorganization and everything that is going on in the City is basically ensuring these activities will be more closely monitored than they have been in the past. He also believes the City Council would be remiss to hold up an activity that would bring approximately, 65 jobs to an area that suffers from blight, prostitution, illegal drug activity and under employed individuals. The City Council is sitting here saying it is doing every thing it can to increase the tax rolls in the City of Flint, but, he (Horrigan) questions the reason it is going to stop a project because something was done poorly in the past. Councilman Horrigan interjected.
Councilman Buchanan stated he would yield the floor because the City Council is supposed to be a professional body and personally, he tired of members of the Council being interrupted when discussing issues, in addition to the chairpersons, themselves not following Robert's Rules of Order. |
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Thu Jun 14, 2018 2:39 pm |
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untanglingwebs
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Councilman Horrigan stated.as a point of clarification, postponing this to Special Affairs gives everyone a couple of days to go through the details. Any comment about stoppage of a project is inaccurate and unfair. All they are doing is asking to have a couple of days to allow members of the City Council an opportunity to meet with Ms. Purcell and others involved so they can all be on the same page before the City moves forward, accurately.
(Councilman Buchanan deferred to protocol to be followed during these meetings. Members of this Council should know the proper protocol and he believes, the lack of it causes most of the problems.) |
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Thu Jun 14, 2018 2:56 pm |
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untanglingwebs
El Supremo
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Councilwoman Sims stated she is trying to learn as much as she can about the Section 108 loans and the Enterprise Community. She would like to know if Ms. Dunlap has a the names of the businesses that have benefited from from these arrangements and if these loans are specifically for the hiring of employees. Ms. Purcell stated that is one of the conditions of the loan.
Councilwoman Sims asked for clarification this is not for the expansion of existing businesses. She would like to make a referral asking for a list of all businesses (for the last three years) that have benefited from Section 108 loans and the number of residents hired. This information should be provided to all members of Council prior to the Special Affairs Meeting of Monday May 13, 2002. |
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Thu Jun 14, 2018 3:13 pm |
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untanglingwebs
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FINANCE COMMITTEE 5/8/2002 referred to BUDGET for response 5/13/2002
Referral by Councilwoman Sims to BUDGET DEPT. She asks Ms. Purcell to provide all members of Council (in writing) with a list of the businesses (and their locations) that have benefited from these funds (for the past three years), in addition to the number of residents hired. She would like a better explanation of ho the funds are distributed , how the companies are selected, etc.
SUBSTITUTE MOTION
Councilman Horrigan stated he would like to make a substitute motion because information such as Councilwoman Sims has mentioned is a good example of why this item was postponed to Special Affairs.
5/13/2002 Adopted by the Master Resolution |
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Thu Jun 14, 2018 3:28 pm |
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untanglingwebs
El Supremo
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Thu Jun 14, 2018 3:31 pm |
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untanglingwebs
El Supremo
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OPINION AND ORDER
AFFIRMING FEBRUARY 6, 2007 BANKRUPTCY COURT RULING
Debtor Joseph Giacalone appeals the Bankruptcy Court's February 6, 2007 ruling
that $140,000.00 of a loan from the City of Flint he personally guaranteed is excepted from
discharge under 11 U.S.C. § 523(a)(2)(A). A hearing on the appeal was held on October
10, 2007. For the reasons set forth below, the ruling is hereby AFFIRMED.
I. Background
On August 14, 2002, Joseph and Deanne Giacalone executed a $877,600.00 HUD
§ 108 loan agreement and personal guarantees with creditor City of Flint on behalf of vinyl
window manufacturer OK Industries. The loan consisted of three components: (1)
$525,000.00 for working capital under § 108; (2) $295,000.00 for fixed assets; and (3)
$57,600.00 for working capital under an Economic Development Initiative ("EDI") program.
Under the terms of the loan, the Giacalones promised to relocate OK Industries from
Lennon, Michigan to Flint, Michigan, and to hire Flint residents over a three-year period.
On March 28, 2005, Genesee County Circuit Court Judge Judith Fullerton entered |
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Thu Jun 14, 2018 3:33 pm |
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untanglingwebs
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judgment in favor of the City of Flint and against the Giacalones and OK Industries for
$820,000.00 plus interest owing on the loan. The Giacalones filed for bankruptcy
protection, and the City of Flint responded by filing an adversary proceeding alleging the
entire judgment debt was non-dischargeable under 11 U.S.C. § 523(a)(2)(A) due to false
representations or actual fraud, and non-dischargeable under 11 U.S.C. § 523(a)(4) for
fraud or defalcation while acting as a fiduciary or committing embezzlement or larceny.
Deanne Giacalone was dismissed from the adversary proceeding on summary judgment.
Joseph Giacalone and City of Flint Economic Program Manager Glenda Dunlap
each testified before the Bankruptcy Court during a bench trial. On February 6, 2007, the
Bankruptcy Judge ruled that:(1) Flint failed to prove non-dischargeability under § 523(a)(4);
(2) Flint failed to prove non-dischargeabililty for fraud under § 523(a)(2)(A) as to the
$525,000.00 working capital portion of the loan for lack of justifiable reliance in that Flint
was aware of Giacalone's difficulties in moving OK Industries to Flint when the parties
executed the loan, and because Giacalone made good faith efforts to hire Flint residents;
(3) Giacalone properly used $155,000.00 of the $295,000.00 fixed assets component of the
loan to purchase machinery and to repair two welding machines. The Bankruptcy Judge
also found that the City of Flint proved Giacalone had misappropriated $ 140,000 of the $295,000.00 fixed assets component of the loan to pay certain contractors as "stipulated
to in Paragraph 8 of the stipulation of facts on record," February 6, 2007 Tr, at 16, and that
Giacalone "falsely represented to the City of Flint the use of these [$140,000.00] funds in
violation of [11 U.S.C. § 523(a)(2)(A)]" Id. The Bankruptcy Court held "that $140,000.00
which Giacalone personally guaranteed is excepted from discharge under [11 U.S.C. §
523(a)(2)(A)]." Id. This ruling of non-dischargeability is the subject of Joseph Giacalone's that the City of Flint proved Giacalone had misappropriated $140,000.00 of the |
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Thu Jun 14, 2018 3:36 pm |
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untanglingwebs
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instant appeal.
II. Standard of Review
A district court applies a clearly erroneous standard to a bankruptcy court's findings
of fact, and plenary de novo review as to questions of law. See In re Charfoos, 979 F.2d
390, 392 (6th Cir. 1992); Bankruptcy Rule 8013. A bankruptcy court's findings of fact are
considered clearly erroneous if, although the record contains evidence to support the
findings, the reviewing court is left with a definite and firm conviction that a mistake has
been made. In re Rembert, 141 F.3d 277, 280 (6th Cir. 1998). To prevail on a claim of
fraud under § 523(a)(2)(A), the creditor must prove: (1) the debtor made a material
misrepresentation known to be untrue; (2) with intent to deceive; (3) that was justifiably
relied upon by the creditor; and (4) a proximate cause of the loss. Id at 280-281.
Fraudulent intent is judged under a subjective standard, and is ascertained by the totality
of the circumstances, including an examination of whether the creditor's conduct was
consistent with an intent to defraud. Id at 282. |
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Thu Jun 14, 2018 3:47 pm |
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untanglingwebs
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III. Giacalone's Arguments
Giacalone argues there is no evidence in the record to support a finding that he did
not intend to use the $295,000.00 fixed asset component of the loan to purchase fixed
assets at the time he signed the contract on August 14, 2002, and therefore the City of Flint
failed to prove any of the elements of fraud: a false representation, known to be false, that
was material and relating to a past or existing fact, made with intent to deceive, justifiable
reliance, or proximate cause of loss. Giacalone specifically argues that in August 2000, he
was told the loan would close on November 10, 2000, and when it did not close, he was
forced to apply for extensions and, in February 2001, to borrow $100,000.00 from a private |
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Thu Jun 14, 2018 3:48 pm |
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untanglingwebs
El Supremo
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bank. Giacalone maintains that after the loan finally closed on August 14, 2002, only
$820,000.00 of the $877,000.00 loan was disbursed through May 2003. Giacalone argues
these delays and shortfalls caused him to use all of his operating capital to pay debts
before going out of business in 2004, which was the proximate cause of the loan loss.
Giacalone points to an FBI investigation finding no fraudulent intent, which Giacalone
argues should have been controlling in the Bankruptcy proceeding. Giacalone continues
that there was no justifiable reliance by Flint because no credit check was ever made, Flint
Economic Program Manager Glenda Dunlap knew of his worsening financial condition,
Acting Mayor Darnel Early told Giacalone the loan was likely to default unless restructured,
and the Flint City Treasurer stated that "nobody" ever repays HUD § 108 loans. Giacalone
further argues that a purchase of real property is a purchase of "fixed assets," and
therefore he properly spent the subject $140,000.00 toward refurbishing a building in Flint. |
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Thu Jun 14, 2018 3:50 pm |
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untanglingwebs
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III. Analysis
The Bankruptcy Judge agreed with Giacalone that the City of Flint could not rely on
asserted misrepresentations made by Giacalone of intending to relocate to Flint or to hire
Flint citizens because Flint Economic Program Manager Dunlap knew the state of OK
Industries when the loan closed on August 14, 2002. The Bankruptcy Judge nonetheless
found that Giacalone misappropriated $140,000.00 of the loan's $295,000.00 fixed asset
proceeds:
The City of Flint was lead to believe that Mr. Giacalone would take the
$295,000 and purchase the equipment with that money. Ms. Dunlop's
testimony was that she continually pressed Mr. Giacalone for details about
this loan and the use of proceeds, and that the necessary details were not as
forthcoming as the details about the relocation and the hiring process.
In fact, Ms. Dunlap was not shown what equipment had been purchased
with this money until much later in 2003. The court therefore concludes that
the City of Flint did rely upon the statements that OK Industries would
purchase $295,000 worth of equipment and that the reliance was not only
justified, but caused a loss to the City of Flint.
By way of example, had OK Industries actually purchased $295,000.00
of equipment with these monies, that equipment would be available for
liquidation . . . .
February 6, 2007 Tr., at 17-18. The Bankruptcy Judge's finding of misappropriation was
also based, in part, on Paragraph 8 of a Stipulation of Facts that was expressly
incorporated into the record:
8. The fixed asset portion of the loan was used primarily to pay trade and
other creditors, not for the acquisition of equipment.
The Stipulation of Facts also reads in part:
4. The Loan was divided into a $525,000.00 working capital loan and a
$295,000.00 loan for the purchase of fixed assets.
* * *
10. In 2004, the City of Flint brought suit against OK Industries, Joseph
Giacalone and DeAnne Giacalone in the Genesee County Circuit Court
alleging a default under the loan documents, case no. 04-78903.
11. On March 28, 2005, Judge Judith Fullerton granted the City of Flint a
judgment in the amount of $820,000.00 plus interest and taxable costs
against OK Industries, Joseph Giacalone and DeAnne Giacalone, jointly and
severally.
12. Nothing has been paid to the City of Flint against this balance by OK
Based on Giacalone's testimony that he spent $155,000.00 of the $295,000.00 loan on
fixed assets that included two welding machines, the Bankruptcy Judge concluded that
Giacalone misappropriated only the difference, $140,000.00. February 6, 2007 Tr, at 16.
Flint Economic Program Manager Dunlap testified that the $295,000.00 fixed assets
Last edited by untanglingwebs on Thu Jun 14, 2018 4:02 pm; edited 2 times in total |
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Thu Jun 14, 2018 3:53 pm |
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component of the loan was intended to be used for the purchase of machinery and
equipment, and that the proceeds of the $57,000.00 EDI component of the loan were never
disbursed because EDI proceeds are not eligible for distribution until a loan recipient begins
making loan payments. December 12, 2006 Tr, at 12-13. Dunlap testified that neither
Giacalone nor his partner Dan Robin were able to produce a complete list of the equipment
OK Industries purchased with the loan. Id. at 20.
Notwithstanding Giacalone's arguments that he intended to spend the entire
$295,000.00 fixed asset portion of the loan on machinery and equipment at the time he
executed the loan, the Bankruptcy Judge could conclude that Giacalone later
misrepresented to Dunlap that he intended to use $140,000.00 of the fixed asset
disbursements to purchase machinery knowing that the disbursements would instead be
used to pay trade and other creditors, intending to deceive the City of Flint into financing
general business expenses with fixed asset proceeds, and causing Flint to lose
$140,000.00 that could have been recovered had the money been spent on machinery.
In re Rembert, 141 F.3d at 280-281. The Bankruptcy Judge was permitted to examine the
totality of the circumstances, including Giacalone's conduct after the loan closed on August
14, 2002, in determining that Giacalone's conduct was consistent with an intent to defraud.
Id at 282
The state court judgement and the parties' Stipulation of Facts conclusively shows
that Giacalone received a total of $820,000.00 in loan proceeds. Giacalone's argument
that an additional $57,600.00 in loan proceeds were not disbursed is consistent with
Dunlap's testimony that these funds represent the EDI component of the loan, funds that
could not be disbursed because no loan payments were ever made. Consequently, it is |
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Thu Jun 14, 2018 4:09 pm |
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untanglingwebs
El Supremo
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beyond dispute that the $295,000.00 fixed asset component of the loan was fully funded,
as was the $525,000.00 working capital component of the loan, totaling the $820,000.00
judgment debt. Dunlap testified that Giacalone was unable to produce a complete list of
fixed assets purchased by OK Industries with the $295,000.00 fixed asset loan proceeds,
and Giacalone stipulated that "the fixed asset portion of the loan was used primarily to pay
trade and other creditors, and not for the purchase of equipment." Giacalone was able to
proffer evidence at trial that he purchased $155,000.00 of fixed assets with the loan
proceeds, allowing the Bankruptcy Judge to conclude that the remainder of the
$295,000.00 fixed asset portion of the loan, $140,000.00, was used to pay general
business debts, and not to purchase machinery or equipment. Giacalone's arguments that
his refurbishing of a building should be considered a "fixed asset," and that $40,000.00 he
used to purchase property on land contract constitutes a "fixed asset" purchase, were not
raised below and will not be considered by this court for the first time on appeal. |
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Thu Jun 14, 2018 4:14 pm |
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