Sixth Circuit – Unsigned Promissory Notes Have Little Probative Value & Limited Admissibility as Evidence
September 8, 2021, Eastern District of Michigan – Debtor Oakland Physicians Medical Center, L.L.C., d/b/a Doctors’ Hospital of Michigan (represented by Trustee Basil Simon, collectively hereinafter “Debtor”) filed for Chapter 11 Bankruptcy in 2015. One of Debtor’s member-physicians, Defendant-Appellant Michael Short filed a proof of claim for $952,377.80 that he alleged he advanced to Debtor as loans. Debtor objected to Defendant’s proof of claim and brought an adversary action to recover $571,939.44 that it had transferred to Short before filing for bankruptcy, claiming that these amounts were avoidable prepetition transfers.
The bankruptcy court found that because the parties had memorialized with signed promissory notes only two of Short’s twenty advances – only those two were loans ( $214,000), and the remaining advances were capital contributions because the record was devoid of any credible evidence to the contrary. The Court ordered Short to repay Debtor $357,939.44 – $100,000 for the preferential payments and $257,939.44 for the fraudulent transfers. Short appealed the judgment to the United States District Court for the Eastern District of Michigan, which affirmed the bankruptcy court. Short appealed the Sixth Circuit, arguing that the bankruptcy court improperly granted summary judgment to Debtor on the preference claim and improperly concluded that only two of Short’s twenty advances were loans.
The Sixth Circuit found that Short did not provide any evidence of an obligation by Debtor to repay Short and that there was no evidence regarding the terms of the loans. Next, the Sixth Circuit concluded that the lower court did not err in limiting the admissibility of the unsigned promissory notes because they were unsigned and provided very little probative value. Further, the Court held that Short introduced no evidence or witnesses to prove the unsigned notes’ authenticity or who might have recorded the notes in question. The Court affirmed the judgment of the district court.