Hardwick v. AndersonHardwick v. Anderson
MEMORANDUM OPINION AND ORDER
Pending before the Court is Appellants Brian Keith Hardwick and Sara Ann Hardwick‘s (the “Hardwicks“) appeal from a final judgment entered by the United States Bankruptcy Court for the Eastern District of Texas (Dkt. #1). This appeal presents the Court with issues arising from the Bankruptcy Court‘s grant of Appellees Andrew H. Anderson and Lori Anderson‘s (the “Andersons“) motion for partial summary judgment. Having considered the briefs, the record, and the relevant pleadings, the Court finds that the Bankruptcy Court‘s decision should be AFFIRMED.
BACKGROUND
The question at issue in this case is whether the Bankruptcy Court may discharge a debt that Brian Hardwick owed to the Andersons for violations of securities laws or fraud in connection with the sale or purchase of securities (Dkt. #4 at pp. 38–44). The Court construes this case of consisting of the following undisputed facts:
- The Andersоns sue Brian Hardwick for violations of securities laws or fraud in connection with the sale or purchase of securities in Texas state court (Dkt. #4 at pp. 183–196);
- The parties settle the lawsuit and release related claims via a settlement agreement and agreed judgment (Dkt. #1 at pp. 46–49; Dkt. #4 at pp. 50–51);
- The settlement agreement and agreed judgment are silent on the issue of Brian Hardwick‘s liability, but provided that Brian Hardwick would pay a fixed sum to the Andersons and that the judgment was in favor of the Andersons (Dkt. #1 at pp. 46–49; Dkt. #4 at pp. 50–51);
- Brian Hardwick does not pay the fixed sum (Dkt. #4 at pp. 93, 215);
- The Hardwicks enter bankruptcy (Dkt. #4 at pp. 93, 215); and
- The Andersons claim that the Hardwick‘s obligation to pay the fixed settlement sum is nondischargeable because the debt falls within an exception to discharge under
11 U.S.C. § 523(a)(19) (Dkt. #4 at pp. 239–254).
The Andersons are the children of Allan and Maria Anderson (Dkt. #1, Exhibit 4 at p. 2). After both Allan and Maria Anderson passed away, the Andersons became co-trustees of the Allan G. Anderson Revocable
Subsequently, the Andersons brought suit against Brian Hardwick (and others) in the District Court for the 429th Judicial District of Collin County under Case No. 429-04164-2016 (Dkt. #4 at pp. 183–196).3 The Andersons alleged that Brian Hardwick, Regal, and others committed fraud to obtain over $2,000,000 in investments from Allan Anderson (Dkt. #4 at p. 189). The Andersons’ listed causes of action were fraud, fraud in the inducement, fraud by nondisclosure, fraudulent concealment, recission under Sections 33(A)(1) and 33(A)(2) of the Texas Securities Aсt, and a request for joint and several liability of Brian Hardwick under Section 33(F)(1) of the Texas Securities Act (Dkt. #4 at pp. 189–194). Brian Hardwick filed an answer in the Collin County case (Dkt. #1, Exhibit 4 at p. 4).
On August 20, 2019, Brian Hardwick and the Andersons entered into the Mediated Settlement Agreement, dismissing the Andersons’ claims with prejudice (Dkt. #1 at pp. 46–49). The Mediated Settlement Agreement did not contain an express denial of liability (Dkt. #1 at pp. 46-49). However, the Mediated Settlement Agreement stated “[t]he parties have all had the opportunity to review and approve this mediated settlement agreement” (Dkt. #4 at p. 47).
On October 4, 2019, the Texas state court entered the Agreed Final Judgment, granting judgment against Brian Hardwick and stating, “the Court hereby signs this Agreed Final Judgment in favor of the Plaintiff” (Dkt. #4 at pp. 50–51).4 The Agreed Final Judgment awarded actual
damages of $3,252,399.68 to the Andersons in addition to post-judgment interest (Dkt. #4 at p. 50). Further, the Agreed Final Judgment states that “[t]his agrеed final judgment finally disposes of all claims against Defendant, Brian Keith Hardwick” (Dkt. #4 at p. 50). Akin to the Mediated Settlement Agreement, the Agreed Final
Approximately a month and half after the Texas state court entered the Agreed Final Judgment, the Hardwicks filed for bankruptcy under Chapter 7 of the United States Bankruptcy Code (Dkt. #4 at pp. 93, 215). The Hardwicks received a bankruptcy discharge (Dkt. #4, Exhibit 1 at p. 66).
On March 21, 2021, the Andersons filed a complaint objecting to the discharge of the $3,252,399.68 debt arising from the Mediated Settlement Agreement and Agreed Final Judgment (Dkt. #4 at pp. 13–31, 83–103). The Andersons objected to the discharge of the debt based on
The Bankruptcy Court‘s decision to grant the Andersons’ motion depended on its finding that the Andersons’ petition in Texas state court only contained claims contemplated in
in connection with the sale or purchase of securities” (Dkt. #1, Exhibit 3 at p. 12). Therefore, the Bankruptcy Court found that the $3,252,399.68 debt was nondischargeable because it arose from a Texas state court judgment (the Agreed Final Judgment) for violations of securities laws or fraud in connection with the sale or purchase of securities (Dkt. #1, Exhibit 4 at pp. 10–13). See
Then, the Andersons filed the “Nоtice of Stipulation Dismissing Remaining Matters and Finalizing Order Granting Partial Summary Judgment” (Dkt. #4 at p. 11). The Hardwicks appealed the Bankruptcy Court‘s decision to grant the Andersons’ motion (Dkt. #1). Both the Hardwicks and the Andersons have filed briefs supporting their positions (Dkt. #7; Dkt. #8). The issue in this case is whether the Mediated Settlement Agreement or Agreed Final Judgment support the Bankruptcy Court‘s grant of partial summary judgment in favor of the Andersons based on
LEGAL STANDARD
A district court has jurisdiction to hear appeals from “final judgments, orders, and decrees” of a bankruptcy court.
supported by the record, including one not reached by the bankruptcy court. See Hammervold v. Blank, 3 F.4th 803, 813 (5th Cir. 2021).
[A]ny debt ... that is for . . . (i) the violation of any of the Federal securities laws ... any of the State securities laws, or any regulation or order issued under such Federal or State securities laws; or (ii) common law fraud, deceit, or manipulation in connection with the purchase or sale of any security.
[R]esults, before, on, or after the date on which the petition was filed, from (i) any judgment, order, consent order, or decree entered in any Federal or State judicial or administrative proceeding; (ii) any settlement agreement entered into by the debtor; or (iii) any court or administrative order for any damages, fine, penalty, citation, restitutionary payment, disgorgеment payment, attorney fee, cost, or other payment owed by the debtor.
The Hardwicks present three (3) issues to the Court: (1) whether a bankruptcy court should independently determine whether a federal or state securities laws violation or related fraud has occurred for purposes of
does not contain an explicit finding of liability can support a nondischarge of debt under
I. The Bankruptcy Court Did Not Err by Precluding Hardwick from Relitigating the Seсurities Laws Violations and Securities Fraud Claims.
The Hardwicks argue that the Bankruptcy Court “should [have] factually determine[d] whether or not a violation of the statute has occurred in order to disallow discharge in bankruptcy court” (Dkt. #7 at p. 13).6
When another court has made a prior determination of liability regarding securities laws violations or related fraud,
determination of liability without relitigation. In re Pujdak, 462 B.R. 560, 574–79 (Bankr. D.S.C. 2011); In re Osborne, Nо. 16–4068, 2017 WL 1232407, at *5 (Bankr. E.D. Tex. Apr. 3, 2017); In re Minardi, 536 B.R. 171, 192 (Bankr. E.D. Tex. 2015). The plain language of
Unlike other nondischargeability provisions such as
Additionally,
II. An Agreed Judgment in Texas State Court that Does Not Contаin an Explicit Finding of Liability Can Support a Nondischarge of Debt Under 11 U.S.C. § 523(a)(19) .
Next, the Hardwicks argue that the Bankruptcy Court erred “when it found that the [Mediated Settlement Agreement] and/or [Agreed Final Judgment] were for
The Andersons claim that “[s]pecific findings indicating the charges being settled or damages awarded are not always necessary under [
“Proper application of [
Statutory exceptions to discharge “are construed strictly against the creditor and liberally in favor of the debtor.” In re Duncan, 562 F.3d 688, 695 (5th Cir. 2009). Therefore, if any basis exists fоr the Agreed Final Judgment to have been in favor of the Andersons outside the scope of
The Court must “look first and foremost to the text of the [Texas state court] judgment as written and, if it is unambiguous, [] must give effect to the literal language used.” In re Piatt Servs. Int‘l, Inc., 493 S.W.3d 276, 281 (Tex. App. - Austin 2016) (citing Shanks v. Treadway, 110 S.W.3d 444, 447 (Tex. 2003)). Where a Texas state court judgment is ambiguous, consideration of the underlying record is appropriate. Hampton v. Equity Tr. Co., 607 S.W.3d 1, 6 (Tex. App.—Austin 2020) (citing Shanks, 110 S.W.3d at 447). “An agreed judgment has the same effect as any court judgment.” Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 422 (Tex. 2000). “When a judgment is rendеred by consent it has neither less nor greater force or effect than it would have had it been rendered after litigation, except to the extent that the consent excuses error and operates to end all controversy between the parties.” Id. “An agreed judgment should be construed in the same manner as a contract.” Id. “Judgments should be construed as a whole to harmonize and give effect to thе entire decree.” Shanks, 110 S.W.3d at 447.
The Court must consider the record underlying the Texas state court case because the Agreed Final Judgment is ambiguous. The Agreed Final Judgment indicates that it is “in favor of the Plaintiffs” and that Brian Hardwick must pay damages to “the Plaintiffs” (Dkt. #4 at p. 50). However, the judgment is unclear on what grounds that it is “in favor of the Plaintiff” (Dkt. #4 at
p. 50). Therefore, the Agreed Final Judgment is subject to more than
III. The Bankruptcy Court Did Not Err in Finding that the Agreed Final Judgment Was Sufficient to Support the Nondischarge of the Debt Under 11 U.S.C. § 523(a)(19) .
Finally, the Hardwicks claim that the Bankruptcy Court erred in finding that the Agreed Final Judgment supported a finding of dischargeability because the judgment contained allegations other than those that
In response, the Andersons argue that no other claims or theories existed that could have served as a basis for the Texas state court judgment against the Hardwicks other than those contemplated in
The Bankruptcy Court‘s statement “[t]hat no other possible basis for entry of the judgment exists is crucial to the outcome in this case” is correct (See Dkt. #1, Exhibit 4 at p. 12). In Texas state court, a judgment must conform to the pleadings and can only assign liability based on claims within said pleadings.
The Court considers pleadings that may provide a basis for Brian Hardwick‘s liability in the Agreed Final Judgment. The only Texas state court pleading in the record that states any claims against Brian Hardwick is the Plaintiffs’ Second Amended Original Petition (See Dkt. 4 at pp. 32–45). However, the Hardwicks argue that the Court should consider Brian Hardwick‘s Texas state court answer and his pro se status (Dkt. #7 at pp. 16-17). Despite this argument, the Hardwicks do not explain how either consideration would clarify the basis for Brian Hardwick‘s liability in the Agreed Final Judgment.7 Therefore, the Court considers only the Plaintiffs’ Second Amended Original Petition because it states claims against Brian Hardwick that provide potential bases for his liability in the Agreed Final Judgment (See Dkt. 4 at pp. 32–45).
opposing party can prepare a defense.” In re Lipsky, 460 S.W.3d 579, 590 (Tex. 2015). Further, the opposing party must be able to “ascertain from the pleading the nature and basic issues of the controversy and what testimony will be relevant.” Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 896 (Tex. 2000).
After careful review of the Plaintiffs’ Second Amended Original Petition, the Court finds that all of its claims lie within the scope of
The Agreed Final Judgment necessarily made an implied finding that Brian Hardwick violated state sеcurities laws or committed fraud in connection with the sale or purchase of a security, satisfying the requirements of
Bankruptcy Court did not err in finding that the Agreed Final Judgment supported a finding of nondischargeability pursuant to
CONCLUSION
For the foregoing reasons, the judgment of the Bankruptcy Court is AFFIRMED.
IT IS SO ORDERED.
SIGNED this 28th day of March, 2024.
AMOS L. MAZZANT
UNITED STATES DISTRICT JUDGE