Saying auto dealer Denny Hecker had "just lied'' during the course of his personal bankruptcy, the judge overseeing the case ruled Wednesday that Hecker's $80 million debt to Chrysler Financial will not be forgiven.
The decision, coming the week after Hecker was indicted on fraud charges over his dealings with Chrysler Financial, means he gets no relief from a big part of his $767 million debt. Chrysler can now stake a claim on Hecker's future earnings and with his business empire in ruins, the millions he owes the company could haunt him for the rest of his life.
Hecker's attorney vowed to appeal the ruling, which several bankruptcy attorneys called rare and perhaps unprecedented in Minnesota.
As soon as U.S. Bankruptcy Judge Robert Kressel announced his decision, Hecker stood up, uttered an expletive and left the courtroom with one of his two attorneys. Hecker was heard yelling more expletives in the hall.
Kressel said he had no choice but to issue the "severe sanction." He said he had reviewed months of incomplete evidence submissions from Hecker and took into account Chrysler Financial's repeated claims that Hecker had stalled, lied and ignored a court order to turn over documents and e-mails.
"It's become clear to me that his tactic is to delay and use subterfuge. He gave vague answers ... and he just lied. He lied to Chrysler Financial and he lied to me about documents he held in his computer," Kressel said. Hecker's actions "prevented Chrysler Financial from preparing for its case," he said.
Chrysler Financial's lawsuit alleging fraud was set to go to trial March 22, but Kressel's ruling makes that unnecessary.
Kressel said the clincher came when Chrysler Financial attorney Howard Roin filed the motion accusing Hecker of lying for months about not having access to his business records. Roin said in court that Hecker's attorney had repeatedly said or written that the FBI had seized all of Hecker's records, leaving him unable to fully comply with requests for documents from Chrysler Financial.
Data turned over this week
That wasn't true, Roin said. Hecker's legal team "lied" and knew all along that the FBI had never seized Hecker's computers during two raids last summer. Instead, the FBI copied data, leaving all e-mail information fully in Hecker's possession, Roin said.
Hecker attorney Bill Skolnick maintained that he and Hecker had complied with all discovery orders and eventually invited Chrysler's attorneys to Hecker's office to take whatever documents they liked.
Several computer disks, documents and a hard drive of data were turned over Monday and Tuesday, but only after Chrysler Financial filed a motion with the court seeking sanctions against Hecker and asking the judge not to forgive his debt. The data and documents originally were due in court in October. Roin called the repeated delays "a gross violation.''
"I have never seen anything like it," he added.
Kressel said he had been inclined to deny Chrysler Financial's request against Hecker since it was based on grievances over Hecker's conduct in the pre-trial, or discovery, phase of the case. "Are you kidding?" Kressel said was his initial reaction. But once he examined the evidence, he changed his mind.
Roin said after Kressel issued his decision that Chrysler Financial "is very pleased that we can put this matter behind us."
Skolnick called the ruling "shocking.''
"We are definitely going to appeal, and we are shocked that the court wrongfully denied Mr. Hecker his day in court," Skolnick said. "To not even consider the merits of the claims is shocking."
Get in line
Seven other financial institutions have asked the court not to forgive Hecker's debts, alleging fraud, conspiracy or other wrongdoing in how he obtained loans. Hecker has denied wrongdoing.
While a very small percentage of debtors have suffered the same fate as Hecker, Kressel's ruling may be unique in Minnesota because of the massive amount of money involved and the sweeping nature of the victory he handed Chrysler.
"I don't know of any bankruptcy case in Minnesota that has come anywhere close to that $80 million," said Mark Kalla, a bankruptcy attorney not affiliated with the case. "That sum is very extraordinary."
Jim Lodoen, another bankruptcy attorney not affiliated with the case, agreed. "I am not aware of any cases where a judge has entered an $80 million non-dischargeable judgment in a bankruptcy case as a sanction for abusing the discovery process. ... This is a very rare decision. But this is also a rare and unique case."
Hecker was indicted a week ago by a federal grand jury on seven counts of fraud, conspiracy and money laundering related to his former auto leasing business. Hecker pleaded not guilty.
The government alleges that Hecker and former executive Steven Leach ordered a clerk to alter documents so Hecker could secure more than $80 million in loans from Chrysler Financial. E-mails and documents regarding that deal had been sought by Chrysler Financial for months.
Hecker filed for bankruptcy in June 2009, claiming $767 million in debt and $18.5 million in assets. Much of the debt -- about $477 million -- was owed to Chrysler. About $80 million was claimed to have been obtained illegally. Now Hecker is responsible for paying it.
The pending criminal case will not affect the rest of Hecker's bankruptcy proceedings, said Matt Burton, attorney for bankruptcy trustee Randy Seaver.
Dee DePass • 612-673-7725