In Re Robert Floyd Ashley, AKA Robert Ashley, Debtor. Robert Floyd Ashley, AKA Robert Ashley v. C. Eugene Church Helen L. Church

Robert Ashley appeals from the decision of the district court affirming the bankruptcy court’s judgment that Ashley owes the appellees, Helen and Eugene Church, $61,000 in principal damages and $10,000 in attorney’s fees, and that the debt is not dischargeable in bankruptcy. This Court has jurisdiction under 28 U.S.C. § 158 (d) to review the district court’s decision. We affirm in part and reverse in part.

I

The Churches first encountered Ashley, an accountant, in the late 1970s, when they sought his advice on the tax consequences of selling a certain parcel of real estate which they owned; later, they hired Ashley to prepare their tax returns for 1978, 1979 and 1980. During this period, Ashley was involved with Darrold and Dwight Efflandt in a plan to finance, establish and develop machine shops. The Churches eventually invested in two of those shops, Trinity Manufacturing Corporation (“Trinity”) and American Machine Manufacturing Corporation (“AMM”). Only the AMM transactions are at issue in this case.

In January 1981, the Churches made a loan of $36,000 to AMM; in April of that year, they made a second loan of $25,000. Each loan was made by means of a check payable to AMM;…