In re: Brian Keith George and Olga George, Debtors. Michael Hogan and Anette Hogan, Appellants, v. Brian Keith George and Olga George, Appellees.
No. 12-8013
BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT
Decided and Filed: January 11, 2013
Appeal from the United States Bankruptcy Court for the Eastern District of Kentucky. Case No. 09-50847, Adv. Case No. 09-05065. Argued: November 13, 2012. File Name: 13b0002n.06. By order of the Bankruptcy Appellate Panel, the precedential effect of this decision is limited to the case and parties pursuant to 6th Cir. BAP LBR 8013-1(b). See also 6th Cir. BAP LBR 8010-1(c).
Before: EMERSON, McIVOR, and PRESTON Bankruptcy Appellate Panel Judges.
ARGUED: Thomas L. Canary, Jr., MAPOTHER & MAPOTHER, P.S.C., Lexington, Kentucky, for Appellants. John E. Davis, DAVIS LAW OFFICE, Lexington, Kentucky, for Appellees. BRIEFED: Thomas L. Canary, Jr., MAPOTHER & MAPOTHER, P.S.C., Lexington, Kentucky, for Appellants. John E. Davis, DAVIS LAW OFFICE, Lexington, Kentucky, for Appellees.
MARCI B. McIVOR, Chief Bankruptcy Appellate Panel Judge.
Michael Hogan and Anette Hogan (“Appellants“) filed an adversary complaint seeking to have a $513,000 debt owed to them by Brian Keith George and Olga George (“Debtors“), declared nondischargeable pursuant to
STATEMENT OF ISSUE
The issue presented in this appeal is whether the bankruptcy court erred in determining that $171,000, a portion of the $513,000 in total damages awarded in a Colorado state court judgment, was nondischargeable.
JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and a final order of the bankruptcy court may be appealed as of right pursuant to
The bankruptcy court‘s final order granting the Appellants’ motion for summary judgment is reviewed de novo. See Int‘l Dairy Foods Ass‘n v. Boggs, 622 F.3d 628, 635 (6th Cir. 2010). De novo review requires the “appellate court [to determine] the law independently of the trial court‘s determination.” O‘Brien v. Ravenswood Apartments, Ltd. (In re Ravenswood Apartments, Ltd.), 338 B.R. 307, 310 (B.A.P. 6th Cir. 2006).
Determinations of dischargeability under
The Appellants commenced a suit against the Debtors and other defendants1 in the first District Court of Jefferson County, Colorado (Case No. 07 CV 6520) (“Colorado litigation“). The State Court complaint was later amended and included the following claims: (1) Misrepresentation/Fraud in the Inducement; (2) Breach of Contract; (3) Negligent Misrepresentation; and (4) Breach of Statutory Duty; (5) Civil Conspiracy; (6) Bad Faith Violation of the Colorado Consumer Protection Act; and (7) Exemplary Damages (Adv. Case Dkt. #1, Exhibit A, Complaint). Subsequent to the filing of the amended State Court complaint, the Debtors’ filed a case under chapter 13. The chapter 13 case was voluntarily dismissed by an order entered on September 12, 2008. After the chapter 13 case was dismissed, the Appellants resumed the Colorado litigation. As summarized by the bankruptcy court, the facts leading to the commencement of the Colorado litigation include:
[T]he Defendants were the owners of property in Colorado. . . . In December 2005, they listed the property for sale, completing a Seller‘s Property Disclosure Form (“the Disclosure Form“) as part of the process. The Defendants had been involved in prior litigation concerning numerous defects in the construction of the Property, and received a settlement in that regard. None of those proceeds were used to effect repairs on the Property.
In February 2006, the Plaintiffs began negotiating for the purchase of the Property. In the course of the negotiations, the Plaintiffs asked the Defendants about structural defects or issues in regard to the Property and were told there were none. In July 2006, the Plaintiffs entered into a real estate contract to purchase the Property from the Defendants. Prior to the execution of the contract, the Defendants tendered the Disclosure Form to the Plaintiffs; the Disclosure Form was incorporated into and made part of the contract. The Defendants became aware of additional defects in the Property after their execution of the Disclosure Form. In the summer of 2006, they
contracted for repairs to the Property‘s sewer/septic system, but did not reveal this to the Plaintiffs. The Plaintiffs and Defendants closed on the sale of the Property on August 31, 2006, and the Plaintiffs took possession of it. Thereafter, the Plaintiffs discovered multiple additional defects involving the sewer/septic system, a retaining wall, flashing under logs and around the deck, the deck foundation, foundation walls, and French drains.
(Adv. Case Dkt. # 34, Memorandum Opinion, pp. 1-2).
These allegations were tried before a jury and a verdict and judgment were entered in the Appellants’ favor on the First (Misrepresentation/Fraud in the Inducement), Second (Breach of Contract), Third (Negligent Misrepresentation), and Seventh (Exemplary Damages) claims. As required under Colorado law in civil liability cases with multiple parties, the jury completed a separate special verdict form for each claim included in the complaint. On the claim of fraud, the special verdict form (“Special Verdict form“) asks the jury, the following questions:
- Do you find that the plaintiffs, Michael Hogan and Anette Hogan, are entitled to recover damages from the defendant, Brian George and Olga George, on the plaintiffs’ claim of fraud . . . .
ANSWER: YES
. . .
- Taking as 100 percent the combined negligence or fault that caused the Plaintiffs’ damages, what percentage of the Plaintiffs’ damages was caused by the negligence or fault, if any, of each of the Defendants from whom you have found the Plaintiffs is entitled to recover.
. . .
Percentage, if any charged to Defendant, Brian George: 50%
Percentage, if any charged to Defendant, Olga George: 50%
State the total amount of Plaintiff‘s damages . . . caused by the combined negligence or fault of all the parties and the designated nonparties.
ANSWER: $171,000.00
(Adv. Case Dkt. #11, Exhibit 3).
The jury also completed a Jury Inquiry and Response form (“Jury Inquiry form“), which states as follows:
You have awarded actual damages against the Georges and in favor of the Hogans on more than one claim. Your actual damage awards were $171,000 on the breach of contract claim, $171,000 on the negligent misrepresentation or concealment claim, and $171,000 on the deceit based on fraud claim.
. . .
What is the total amount of actual damages suffered by Hogans because of the conduct of the Georges? $513,000.00.
(Adv. Case Dkt. #5, Answer to Complaint, Exhibit 1).
Finally, an Order for Entry of Judgment (“Colorado Judgment“) was entered by the Jefferson District Court Judge, Christopher J. Munch, sustaining the jury verdict. The Colorado Judgment avers:
THIS MATTER having come before the Court for Trial to a Jury of Six, the Jury having rendered its verdicts on Feb. 12. 2009 and the Court having reviewed the verdicts rendered by the Jury does hereby enter Judgment pursuant to C.R.C.P. 58(a) in favor of the Plaintiffs Michael Hogan and Anette Hogan and against the Defendants Brian George and Olga George as follows:
- On Plaintiffs’ First Claim for Relief - Misrepresentation in the Inducement, on Plaintiffs’ Second Claim for Relief - Breach of Contract and on Plaintiffs’ Third Claim for Relief - Negligent Misrepresentation judgments in favor of the Plaintiffs Michael Hogan and Anette Hogan and against the Defendants Brian George and Olga George jointly and
severally for actual damages of $513,000 hereby enter. The judgments entered on each claim for relief herein are in the alternative. Pursuant to the verdict of the Jury total actual damages awarded to the Plaintiffs are $513,000.00. The judgments entered hereby shall bear interest at the statutory rate from and after August 31, 2006. - On Plaintiffs’ Seventh Claim for Relief - Exemplary Damages judgment in favor of the Plaintiffs Michael and Anette Hogan and against Defendant Brian George for exemplary/punitive damages of $93,500.00 hereby enters. The judgment entered hereby shall bear interest at the statutory rate from and after Feb. 12, 2009.
- On Plaintiffs’ Seventh Claim for Relief - Exemplary Damages judgment in favor of the Plaintiffs Michael and Anette Hogan and against the Defendant Olga George for exemplary/punitive damages of $93,500.00 hereby enters. The judgment entered hereby shall bear interest at the statutory rate from and after Feb. 12, 2009.
(Adv. Case Dkt. #1, Exhibit B, Order for Entry of Judgment). The Colorado Judgment was not appealed.
On March 23, 2009, Brian Keith George and Olga George filed a petition for relief under chapter 11 of the Bankruptcy Code, which was subsequently converted to a case under chapter 7 on October 21, 2009. The bankruptcy case was assigned to Judge William S. Howard.
On April 28, 2009, the Appellants filed an adversary complaint seeking to have the $513,000 debt owed to them by the Debtors based upon a Colorado State Court Judgment, declared nondischargeable pursuant to
On August 26, 2009, the Appellants moved for summary judgment on their complaint. The Appellants argued that all the elements necessary to prove their claims for fraud and negligent
On November 12, 2009, the bankruptcy court issued a memorandum opinion and order granting summary judgment on the Appellants’ claim under
The bankruptcy court, however, concluded that there were genuine issues of fact that precluded a finding of summary judgment on Appellants’ claim for willful and malicious injury to property under
The bankruptcy court also denied summary judgment on the Appellants’ claim for negligent misrepresentation under
The Appellants filed a motion to reconsider the bankruptcy court‘s order, and the Debtors filed a response. The bankruptcy court issued a memorandum opinion denying Appellants’ motion to reconsider.
After the bankruptcy court‘s denial of the Appellants’ motion to reconsider, the Appellants filed an appeal from the bankruptcy court‘s order granting partial summary judgment (BAP Case No. 10-8002). On May 18, 2011, the Bankruptcy Appellate Panel held that it lacked jurisdiction to hear the appeal under
Upon remand of the case to the bankruptcy court, a new bankruptcy judge, Judge Tracey N. Wise, was assigned to hear the remaining issues in the Debtors’ case. On July 12, 2011, the Appellants filed a “Motion for Summary Judgment to Fix Damages” associated with the bankruptcy court‘s prior finding on the fraud claim. The motion sought a judgment declaring nondischargeable the entire amount owed to them by the Colorado Judgment. On September 7, 2011, the court held a hearing on the Appellants’ motion for summary judgment. At the hearing, the parties agreed to brief the issues of whether attorneys fees and costs awarded to Appellants in the Colorado litigation and/or attorneys fees incurred by the Appellants in pursuit of the adversary proceeding are excepted from discharge under
On February 1, 2011, the bankruptcy court entered a memorandum opinion denying the Appellants’ motion for summary judgment. The opinion also held that the debt due the Appellants for attorneys fees and costs was excepted from discharge. The bankruptcy court held that the Appellants’ motion for summary judgment “is merely an untimely Motion to Reconsider,” and declined to revisit or alter the issues previously decided by Judge Howard. The bankruptcy court noted that the Appellants had waived their remaining causes of action rather than proceed to trial, leaving only the issues regarding attorneys fees and costs. The bankruptcy court determined that the attorneys fees and costs awarded to the Appellants in the Colorado litigation in the amounts of $96,083.50 and $56,287.90, and attorneys fees and costs incurred in prosecuting the adversary proceeding in the amount of $10,458 and $250, were excepted from discharge under
On March 21, 2012, the bankruptcy court issued an order altering and amending the judgment making the same a final adjudication. The bankruptcy court further ordered that the claims in Appellants’ original complaint that had been waived be dismissed with prejudice.
The Appellants filed a notice of appeal in which they challenge the bankruptcy court‘s holding in the original judgment that the “debt to the Plaintiffs for damages in the amount of $171,000.00 awarded on their claim for fraud is nondischargeable.” (Adv. Case Dkt. #92). No appeal was taken from the bankruptcy court‘s award of attorneys fees and costs.
DISCUSSION
Pursuant to
(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt -
(2) for obtaining money, property, services, or an extension, renewal, or refinance of credit, by-
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor‘s or an insider‘s financial condition . . .
A creditor seeking an exception to discharge under
The doctrine of collateral estoppel applies in dischargeability proceedings. Grogan v. Garner, 498 U.S. 279, n.11, 111 S. Ct. 654, 658, n.11 (1991); Bay Area Factors v. Calvert (In re Calvert), 105 F.3d 315 (6th Cir. 1997). The doctrine of collateral estoppel prevents an issue from being relitigated where the issue of fact or law was actually litigated and necessarily decided in a prior action between the same parties. In re Markowitz, 190 F.3d at 461. The bankruptcy court must make its own determination regarding the dischargeability of the debt, but that determination may be governed by factual issues which were actually and necessarily decided by the state court. Vogel v. Kalita (In re Kalita), 202 B.R. 889, 894 (Bankr. W.D. Mich. 1996). The bankruptcy court must give a state court judgment the same preclusive effect that judgment would have in state court unless the Full Faith and Credit Statute,
The bankruptcy court in the instant appeal found that the state court judgment is entitled to full faith and credit on the Appellants’ claim for fraud under
The Appellants do not challenge the bankruptcy court‘s determination that the elements of fraud established in the Colorado litigation are sufficient to establish fraud under
If the district court‘s account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder‘s choice between them cannot be clearly erroneous.
Such deference to the trial court is necessary because the trial judge is in the best position to determine the credibility of witnesses.
The record in the bankruptcy court supports the court‘s conclusion that the Appellants are entitled to damages of $171,000 for fraud under
The Jury Inquiry form also affirms that separate damages awarded were awarded by the jury on each of the Appellants’ causes of action. The Jury Inquiry form reads: “[your] actual awards were $171,000 on the breach of contract claim, $171,000 on the negligent misrepresentation or concealment claim, and $171,000 on the deceit based on fraud claim.” (Emphasis added.) The Jury Inquiry form then asks the jury what total amount of actual damages were suffered by the Appellants. The amount provided by the jury in the special verdict form is “$513,000.00.”
Finally, the language of the Colorado Judgment corroborates the total amount of damages awarded by the jury stating that “[p]ursuant to the verdict of the Jury total actual damages awarded to the Plaintiffs are $513,000.00.” While the Colorado Judgment does not break down the amount awarded under each claim, this fact alone does not support the conclusion that the court was awarding $513,000 on each claim, as argued by the Appellants.
CONCLUSION
For the foregoing reasons, the Panel affirms the decision of the bankruptcy court.