Nathan Reuter v. Tana Cutcliff
686 F.3d 511
| 8th Cir. | 2012Background
- Reuter, a former real estate developer, formed Vertical Mortgage LLC in Missouri in 2003 with Daryl Brown, who led Vertical’s securities arm.
- Brown steered Reuter to a disputed golf-resort funding deal; Reuter paid $111,000 to the developer, which collapsed at the meeting in Germany.
- Reuter assisted Brown in obtaining a mortgage for Brown’s goods, and later learned Brown missed payments; Missouri securities investigation of Vertical followed.
- Brown marketed a high-yield, zero-risk investment to Reuter, who then recruited several creditors to participate; victims were told funds would be escrowed to leverage letters of credit and then returned with commissions.
- Brown allegedly controlled escrow accounts and misappropriated victims’ funds; each creditor lost $50,000–$300,000.
- Missouri sued Vertical and affiliates in 2005; in 2006 creditors sued Reuter; Reuter filed Chapter 11 and proposed a plan to settle the claims; a combined hearing addressed dischargeability and plan confirmation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether underlying state-law liability was properly established | Reuter argues underlying liability was not proven under state law. | Reuter contends the court focused only on dischargeability, not underlying liability. | Court proceeded with underlying liability determinations; not clearly erroneous. |
| Whether Reuter is vicariously liable for Brown’s fraud | Reuter challenges partnership finding and vicarious liability. | Reuter’s conduct and relationships support a Missouri partnership imputation of Brown’s fraud to Reuter. | Affirmed vicarious liability under Missouri law, making debts non-dischargeable under § 523(a)(2)(A). |
| Whether Reuter’s direct common-law fraud liability was proven | Creditors assert direct fraud by Reuter to five creditors under Missouri law. | Debtor contends the court’s direct-fraud ruling was unnecessary given vicarious liability. | Not necessary to decide; affirmance based on vicarious liability and § 523(a)(2)(A). |
| Whether Reuter violated Missouri securities law and whether those debts are nondischargeable under § 523(a)(19) | Creditors assert Reuter sold unregistered securities and engaged in fraudulent statements. | Reuter disputes securities-law liability; some argue about whether sale occurred. | Affirmed § 523(a)(19) nondischargeability for securities-law liabilities and related attorney’s fees. |
Key Cases Cited
- Field v. Mans, 516 U.S. 59 (1995) (dischargeability standards rely on general common-law tort principles)
- Strang v. Bradner, 114 U.S. 555 (1885) (imputation of fraud within partnerships and joint ventures)
- Deodati v. M.M. Winkler & Assocs. (In re M.M. Winkler & Assocs.), 239 F.3d 746 (5th Cir. 2001) (Strang standard on agency and partnership fraud dischargeability)
- In re Burnett, 646 F.3d 575 (8th Cir. 2011) (standard of review for bankruptcy appellate decisions)
- In re Hixon, 387 F.3d 695 (8th Cir. 2004) (evidence review in fraud findings for securities context)
- Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15 (2000) (state-law validity influences bankruptcy claims)