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untanglingwebs
El Supremo
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I drove down Richfield Road past the Kearsley driving range and saw the auction signs for the hugely disputed and litigated housing project on former Flint golf course land. This makes the third failure for this property.
On November 7, 2001, The City law Department responded to Councilman Matt Schlinker (council referral #011160) Loan to Mary Rolfe.
Deputy Chief Ed Parker assemble the investigative file and was praised by Chief legal Officer Karen McDonald Lopez for his thorough gathering and interpreting highly complex facts.
"It appears that Alex Thomas has, unfortunately, not followed applicable guidelines for approval and dispersing assets from the Flint Area Enterprise Community Fund to mary Rolfe & Associates."
The report indicated that in order to avoid a negative HUD monitoring finding, the City would have to replace the $150,000 as the possibility of recovery from Mary Rolfe & Associates was not likely. |
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Fri Jul 01, 2016 1:08 pm |
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untanglingwebs
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Thomas indicated he could use a number of fund sources to recover the funds from the loan, and he would have done so when it was apparent Rolfe & Associates could not repay. He stated he did not want to create an appearance of impropriety.
The Law Department wanted to further analyze the possibility of a negative HUD finding.
" It should be noted that the federal grant funds still remain in the account and were not and could not, be drawn against without the requisite approvals. It is inconclusive just what the City and HUD's responsibility is in such a circumstance."...
"I recommended to Alex Thomas on September 11, 2001 at mobile City Hall, following his explanation of what had occurred, that he draft a proposed resolution for the F.E.D.C. (Flint Economic Development Corporation) to ratify the loan, If the Board were to ratify the loan, then Mr. Thomas could attempt to accomplish the program objectives as originally contemplated utilyzing a diffrent source of funding."
cc: Darnell Earley, City Administrator |
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Fri Jul 01, 2016 1:56 pm |
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untanglingwebs
El Supremo
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Documents:
1. Memorandum of Understanding involving a $150,000 "loan" between Department of Community and Economic Development (DCED) and Mary Rolfe & Associates dated January 30,2001.
2. City of flint checks for Mary Rolfe & Associates
a. Check # 032528 dated 1/17/01 in the amount of $12,000 as EDC Loan drawn on Fund 703
b. Check # 0362366 dated 3/29/01 in the amount of $50,000 drawn on FAEC funds in program #273
c. Check # 038827 dated 5,29/01 in the amount of $48,000 drawn from FAEC funds program #273
d. Check # 040827 dated 7/19/01 in the amount of $40,000 drawn From FAEC in
funds program #273 |
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Fri Jul 01, 2016 2:11 pm |
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untanglingwebs
El Supremo
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3. lender records from FAIF and FAEC re: loan on February 1,2001 to Mary A. Rolfe & Associates (MAR) made to FAIF
a. promissory note on 2/1/2001 in amount of $50,000 from Mar to FAIF
b. City of Flint check #03428 made payable to FAIF or FAEC for MAR drawn on fund #273
c. Past due notice to MAR for loan referenced in 3(a) from FAIC |
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Fri Jul 01, 2016 2:22 pm |
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untanglingwebs
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7. City Council resolution dated 7/9/01 authorizing DCED to enter into a loan agreement with MAR for unused 1995-1996 HOME Investment Partnership Funds for Sugar Maple farms
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8 (g) Flint Journal article entitled "Money for the poor diverted" pages A1 to A2 dated 9/9/01
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Fri Jul 01, 2016 2:35 pm |
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untanglingwebs
El Supremo
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In the fall of 2000, Mary a Rolfe (MAR) had the approval of Genesee county to invest $800,000 in federal HOME dollars for the development of a housing project on Kearsley Lake to be named Sugar Maple Farms. MAR purchased the land from the City of Flint.
In January 2001, MAR and Alex Thomas, approached FAIF & FAEC about a loan as MAR was having cash flow problems and needed to pay staff wages.
1/21/2001- FAIF loan Committee was reluctant to provide loan as 2 lines of credit at two banks had been cancelled. The loan was represented as a "bridge" loan until MAR received funds due from Flint.
1/30/10 - FAIF & FAEC boards approved $50,000 loan. City of Flint disbursed a check for $50,000 to FAIF and FAEC which then was disbursed to Mar at a closing on 2/1/2001. The loan is now in default. |
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Fri Jul 01, 2016 3:45 pm |
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untanglingwebs
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According to Mary Rolfe, she was experiencing financial difficulty and told Alex Thomas that she was "considering selling 25% of her ownership position in Sugar Maple Farms. Rolfe stated that Thomas suggested alternate financing for pre-development osts through the Department of Economic Development.
!/17/2001- Finance Department issued MAR a check for $12,000 from the Revolving loan Fund. There was no authorization for this loan, no resolutions and no minutes to substantiate the loan, which was against the Economic development Administration US Department of Commerce and the Flint EDC. This was a direct violation of the federal revolving loan fund guidelines. Thomas implied he had transacted similar loan transactions (no specifics)
A major problem emerged when Genesee Township refused to approve the water "tap ins, thus preventing development.
1/30/2001-Thomas, on behalf of the Department of Economic Development, executed a "Memorandum of Understanding"with MAR. Thomas did not use legal counsel when he drafted the document and the document reads much like a partnership for the DCED and MAR to move jointly towards the development of mixed income housing. DCED would provide incremental administrative funding to a maximum of $150,000 towards one subdivision and one apartment complex."
Language in the MOU indicates the loan did not have to be repaid until MAR had "profit margins from home sales to reimburse DCED'.
This type of partnership would require City Council approval. On 7/9/2001, Thomas submitted a resolution to the City Council, Chief legal Officer and the Finance Director for the authorization of "unspent DCED Home Investment Partnership funds. On 7/19/2001, Thomas loaned MAR $40,000. |
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Fri Jul 01, 2016 4:18 pm |
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untanglingwebs
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3/8/2001 a memo from "Sun-Lin to Mary" was forwarded to Thomas. The memo detailed debts of MAR from MAR Construction. The document contained handwritten notes of FAIF obligations, indicating that City of Flint DCED principal of $189,000 and DCED $12,000 are "deferred".
3/29/2001 City of Flint check #36233, drawn on Fund 273, made payable to MAR & Associates was disbursed for $50,000. An attached note refers to a loan agreement and states "The funds are available from the Flint Area Enterprise Community loan Account."
May 29,2001- City of Flint Check # 3827 for $48,000 on fund 273 to MAR
July 19,2001- City of flint check #040827 in amount of $40,000 on fund 273 to MAR
Bobby Wells, substantiated by FAEC corporate minutes, show the Board of directors did not approve the $138,000 n loans and had no knowledge of these loans. Richard Figura,FAEC attorney confirmed.
Mary Rolfe stated she received $150,000 from DCED, but thought the money came from the general fund of the City of flint.
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Fri Jul 01, 2016 4:36 pm |
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untanglingwebs
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September 27, 2001- Nancy Jurkiewicz meets with HUD representative Ellen Chung and Alex Thomas regarding the Sugar Maple Farm transactions, . Per Chung, there will no monitoring finding on the matter "as Thomas has assured her the journal transactions will be journal entry to other funds."Jurkiewicz feared insufficient funds for the closure of the next two loans. Indications were that HUD expects FAEC fund 273 to be reimbursed or they will issue a sanction letter.
"It appears that no payment has been made on the $150,000 balance. It would seem that Ms. Rolfe sees no obligation at this time to repay the "loans" because there is no definite date that the amount would come due, and no profit has been realized from the sale of Sugar Maple farms homes".
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Fri Jul 01, 2016 4:46 pm |
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untanglingwebs
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Conclusion:
1) "It is clear that Mr Thomas has violated federal,state, local and FAEC corporate guidelines for approval, processing and disbursing assets from the Flint Area Enterprise Community Fund 273. The City of Flint, as appointed agent, and fiduciary for the Flint Area Enterprise Zone, has allowed funds earmarked for the zone to be disbursed contrary to guidelines, It appears representations have been made by Mr. Thomas to HUD officials that the "loaned" funds will be journaled out of the 273 fund, the the 273 fund must be replenished by City of Flint assets. In the event the loans are not "journaled out", then a "monitoring finding" (sanction) could weaken the Flint Area Enterprise's Community Zone's ability to obtain an upgraded designation. Mr. Thomas wrote in his statement that HUD had not "found inappropriate use of federal funds", however a HUD sanction seems to be possible."
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Fri Jul 01, 2016 4:59 pm |
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untanglingwebs
El Supremo
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| 2) t is clear Mr.Thomas has violated federal DCED and FEDC guidelines for approving, processing and distributing assets from the Economic Development Fund 703. It is assumed the Economic development Administration of the US department of Commerce could demand the $12,000 be returned to the Economic Development RLF 703. It would appear that the Economic Development Funds may be federal money. This writer received no documents from Mr. Thomas which indicate that these funds are not federal dollars. |
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Fri Jul 01, 2016 5:06 pm |
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untanglingwebs
El Supremo
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3) "The City of Flint finds itself in "partnership" with a business that has solvency problems and cannot get its development off the ground. If the Memorandum of Understanding is binding, then Mary A Rolfe and Associates,Inc., has no legal obligation to repay the "loans" until a "profit' is realized from the sale of homes at the Sugar maple Farms Development."
4) "Mr. Thomas acknowledges that he should have obtained the Adminstration's and Council's approval of the "partnership" agreement. The Administration and the Council were denied their harter right to decide whether to have a business relationship with Mary A. Rolfe & Associates, Inc." |
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Fri Jul 01, 2016 5:15 pm |
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untanglingwebs
El Supremo
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| 5) "Mr. Thomas indicates that the funds are not needed for programs, yet ms. Jurkiewicz indicates otherwise. It appears the money must be returned to the 273 and 703 funds, yet recovery from Mary A. Rolfe & Associates, INC., is unlikely, as it has no assets and apparently poor credit. It is the concern of this writer that the $150,000 my never be recovered unless the development moves forward. It seems,that with the existing economy, the developer may never realize a "profit margin from home sales to reimburse DCED for administrative advances." |
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Fri Jul 01, 2016 5:21 pm |
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untanglingwebs
El Supremo
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United States Bankruptcy Court, E.D. Michigan, Southern Division — Flint.·Case No: 08-30874, Adv. Pro. No: 08-03101. (Bankr. E.D. Mich. Mar 29, 2010)
IN RE MOEN
Opinion Granting in Part and Denying in Part Plaintiffs' Motion for Summary Judgment
DANIEL OPPERMAN, Bankruptcy Judge
The Plaintiffs commenced this adversary proceeding under §§ 523(a)(2)(A), (a)(4), and (a)(6) of the Bankruptcy Code seeking a determination that debts owing by the Defendant are non-dischargeable. The Defendant is indebted to the Plaintiffs pursuant to an Amended Final Judgment entered after a jury rendered a verdict in favor of the Plaintiffs and against the Defendant in a state court civil action. The Plaintiffs now move for summary judgment on their three count complaint. The central issue before the Court is whether the Amended Final Judgment collaterally estops the Debtor from relitigating any of the elements under §§ 523(a)(2)(A), (a)(4), or (a)(6). The Court grants Plaintiffs' motion as to Count I, but denies the motion as to Counts II and III.
I. Jurisdiction
This Court has subject matter jurisdiction over this proceeding under 28 U.S.C. §§ 1334(b), 157(a), and 157(b)(1) and E.D. Mich. LR 83.50(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I).
II. Facts and Procedural Background
The parties were previously involved in significant and lengthy litigation in state court. The following summary of the facts are largely undisputed and were obtained from the parties' briefs and the transcripts from the state court civil action that are part of the record in this proceeding. (Plf.s' Mot. for Summ. J. (Docket no. 31) and Def.'s Resp. (Docket no. 41 and 42).)
The Debtor, Theodore R. Moen, III, is a real estate agent. He was formerly employed as an independent contractor with Garrow-Loftis, Inc. ("Garrow-Loftis"), a real estate brokerage firm. Sometime in late 1999 and early 2000, the Debtor along with another real estate agent, Joe Snell, successfully obtained the exclusive listing contract for Garrow-Loftis on a residential subdivision development known as Sugar Maple Farms located in Flint, Michigan. In June 2000, the real estate developer, Mary A. Rolfe, Inc. and the City of Flint entered into an agreement for the development of the property at Sugar Maple Farms.
In late 2000 to early 2001, the Plaintiffs, Glen and Diana Kelly (the "Kellys"), contacted the Debtor to learn more about the Sugar Maple Farms development. After meeting the Debtor at the Sugar Maples Farm site and discussing the plans for the development, the Kellys put a $500 deposit down to reserve a lot. In May 2002, the Kellys, with the Debtor acting as their real estate agent, listed their existing home for sale. In July 2002, the Kellys closed on the purchase of their lot at Sugar Maple Farms and the construction of their new home by MAR Construction Co., L.L.C. At some point during the summer of 2002, the Kellys' existing home was sold subject to the condition that the Kellys did not have to vacate their home for 90 days in order to coordinate their move with the expected completion date of their home in Sugar Maples Farm in November 2002. Contrary to their expectations, the Kellys were required to live with their son for a period of time because their home in Sugar Maples Farm was not completed by November 2002. The Kellys were informed by the Debtor that their move in date for their new home in Sugar Maples Farm would be delayed until January 2003. An additional delay arose and the Kellys learned from the Debtor that they would not be able to move in to their house in Sugar Maples Farm until March 2003.
In October 2002, the Plaintiffs, Andrew and Pamela Aho (the "Ahos"), put a deposit down on a lot in Sugar Maple Farms after meeting with the Debtor to discuss the development. During this same time, the Ahos entered into an construction agreement with MAR Construction Co., L.L.C., for the building of a new home on their lot in Sugar Maple Farms. In November 2002, the Ahos, like the Kellys had done, hired the Debtor to act as their real estate agent to sell their existing home. In December 2002, the Ahos closed on the purchase of their lot and the construction loan for the building of their new home in Sugar Maple Farms. The Ahos had been informed by the Debtor that they would be able to move in to their home in Sugar Maple Farms in March 2003. Due to additional delays that were occurring with their home, the Ahos requested a meeting with the Debtor, the developer, and the builder. During this meeting the Ahos received assurances that their Sugar Maple Farms' home would be completed by May 2003. In April 2003, the Ahos sold their existing home. The Ahos moved into a rental home because the construction on their new home in Sugar Maple Farms was still in progress.
Neither the Ahos or the Kellys were able to move in to their homes in Sugar Maple Farms. The City of Flint would not issue certificate of occupancies because the installation of necessary water connections had not been completed. For quite some time, the developer had been experiencing various administrative, financial, and legal problems. In May 2003, the Kellys and the Ahos learned the full extent of these problems and attempted to work with the developer to resolve them. They were unsuccessful.
In June 2003, the Plaintiffs filed suit against the Debtor, Garrow-Loftis, and many other defendants in the Circuit Court for the County of Genesee in the State of Michigan. The Plaintiffs third amended complaint contained 22 counts. Those counts relevant to the Debtor included: Count XVI — Innocent Misrepresentation; Count XVIII — Silent Fraud; Count XIX — Fraudulent Misrepresentation. As to the Debtor, the Plaintiffs sought to recover damages sustained by them due to the Debtor's alleged misrepresentations and failure to disclose information to them in connection with their purchase of vacant lots and the construction of new homes in the Sugar Maple Farms subdivision development. The Plaintiffs sought a judgment against the Debtor and Garrow-Loftis, Inc., in excess of $25,000 plus attorney fees, costs, consequential and exemplary damages. The Debtor and Garrow-Loftis, Inc., were represented by the same counsel throughout the state court civil action.
The Plaintiffs reached settlements with several of the other defendants. In August 2006, the Plaintiffs, the Debtor and Garrow-Loftis participated in case evaluation. The panel recommended an award to the Plaintiffs, which Garrow-Loftis and the Debtor rejected. The suit proceeded to a five day jury trial that began on September 8, 2006 and continued on September 12 through September 15, 2006. The Plaintiffs called the following witnesses to testify: Mrs. Pamela Aho, Mrs. Diana Kelly, and the Debtor. When the Plaintiffs rested, counsel for the Debtor and Garrow-Loftis moved for directed verdict, which was denied.
The Debtor and Garrow-Loftis called the following witnesses to testify: Mr. Gaetan Manningham, Mr. William Ayre, Mr. Robert Garrow, Mrs. Diana Kelly, Mrs. Pamela Aho, and the Debtor. On the fourth day of the jury trial, the parties' rested their cases and the jury was excused. The state court then discussed with counsel for the Plaintiffs' and the Debtor, the various jury instructions to be issued including Michigan's Model Civil Jury Instruction 128.01 Fraud Based Upon False Representation and 128.02 Fraud Based on Failure to Disclose Facts (Silent Fraud).
M Civ. JI 128.01 states in pertinent part:
Plaintiff claims that defendant defrauded [him/her/it]. To establish fraud, plaintiff has the burden of proving each of the following elements by clear and convincing evidence: a. Defendant made a representation of [a material fact/material facts]. b. The representation was false when it was made. c. Defendant knew the representation was false when [he/she/it] made it, or defendant made it recklessly, that is, without knowing whether it was true. d. Defendant made the representation with the intent that plaintiff rely on it. e. Plaintiff relief on the representation. f. Plaintiff was damaged as a result of [his/her/its] reliance. Your verdict will be for the plaintiff (on the claim of fraud) if you decide that plaintiff had proved each of these elements by clear and convincing evidence. Your verdict will be for the defendant (on the claim of fraud) if you decide that plaintiff has failed to prove any of these elements by clear and convincing evidence.
M Civ JI 128.02 states in pertinent part:
Plaintiff claims that defendant defrauded [him/her/it] by failing to disclose material facts. To establish this, plaintiff has the burden of proving each of the following elements by clear and convincing evidence: a. Defendant failed to disclose [a material fact/material facts] about [insert subject of the claim.] b. Defendant had actual knowledge of the [fact/facts]. c. Defendant's failure to disclose the [fact/facts] caused plaintiff to have a false impression. d. When defendant failed to disclose the [fact/facts], defendant knew the failure would create a false impression. e. When defendant failed to disclose the [fact/facts], defendant intended that plaintiff rely on the resulting false impression. f. Plaintiff relied on the false impression. g. Plaintiff was damaged as a result of [his/her/its] reliance. Your verdict will be for the plaintiff (on the claim of fraud) if you decide that plaintiff has proved each of these elements by clear and convincing evidence. Your verdict will be for the defendant (on the claim of fraud) if you decide that plaintiff has failed to prove any one of these elements by clear and convincing evidence.
Upon the return of the jury, the parties' presented their closing arguments. At the conclusion of their arguments, the record reflects that the state court instructed the jury as follows:
Now, plaintiff's got two theories in this case; they've brought two claims. One of the claims is that these defendants defrauded them. To establish fraud, the plaintiffs have the burden of proving certain things to you . . . by clear and convincing evidence. . . . . The first thing they have to prove to you is that these defendants made a representation of a material fact about the delays in the construction of their home due to contractual, financial, political or administrative problems. The second thing they have to prove to you is that the representation was false when made. The third thing they have to prove to you is that these defendants knew the representations were false when they made it, or the defendant made the representations recklessly. That is to say, without knowing whether it was true. They have to prove that the defendant made the representation with the intent that the plaintiff rely upon it. They have to prove that the plaintiff did rely upon the representation. And then they have to prove the plaintiff was damaged as a result of that reliance.
Now, your verdict is going to be for these plaintiffs either or both of them on the claim of fraud if you decide that these plaintiffs have proved each and every one of those representations by clear and convincing evidence — each one of those elements. Now, your verdict is going to be for the defendant on the claim of fraud if you decide that the plaintiff has failed to prove any one of those elements.
Now, they have a second theory. Plaintiff[s] claim[] that the defendants defrauded them by failing to disclose material facts. And what they have to prove there sounds a little similar, but I'm going to go through it because it's slightly different. To establish this, they have the burden of . . . proving certain elements to you by clear and convincing evidence. First[,] they have to prove to you that these defendants failed to disclose a material fact about delays in the construction of the plaintiffs' homes due to contractual, financial, political or administrative problems. They have to prove to you that these defendants had actual knowledge of the facts. They have to prove to you that the defendant[s'] failure to disclose those facts caused plaintiffs to have a false impression. They have to prove to you that when the defendant failed to disclose those facts, the defendants knew the failure would create a false impression. They have to prove to you that when the defendant failed to disclose the facts, the defendant intended that the plaintiff rely on the resulting false impression. They have to prove to you that the plaintiff did rely upon the false impression. And they have to prove that the plaintiff was damaged as a result of that reliance.
And like I said on the other theory, your verdict is going to be for the plaintiff — either plaintiff — if you decide that the plaintiffs have proved each of these elements by clear and convincing evidence. Your verdict is going to be for the defendants if you decide that the plaintiffs have failed to prove any one of those elements with clear and convincing evidence.
(Def.'s Resp., Ex. 5, Tr. at 160-62, September 14, 2006 (Docket no. 41).) The Debtor's counsel did not raise any objections to the jury instructions issued by the state court. In addition to the jury instructions, the state court provided the jury with a verdict form that had been prepared by Plaintiffs' counsel, which was also not objected to by the Debtor's counsel. The state court explained the purpose of the verdict form to the jury and then read most of it to the jury. The verdict form stated:
Glen and Diana Kelly 1. Did Defendants commit a fraudulent misrepresentation against Plaintiffs Glen and Diana Kelly? Yes ____ No ____ If yes, proceed to Question No. 1(A). If no, proceed to Question No. 2. 1(A). In what amount are Glen and Diana Kelly entitled to be awarded from Defendants for fraudulent misrepresentation, including exemplary damages?
$ __________
2. Did Defendants commit silent fraud against Plaintiffs Glen and Diana Kelly? Yes ___ No ___ If yes, proceed to Question 2(A). If no both to Sections 1 and 2 proceed to Question 4. 2(A). In what amount are Glen and Diana Kelly entitled to be awarded from Defendants for silent fraud including exemplary damages?
$ __________
3. What is the total amount of damages awarded to Glen and Diana Kelly?
$ __________
Andrew and Pamela Aho 4. Did Defendants commit a fraudulent misrepresentation against Plaintiffs Andrew and Pamela Aho? Yes ____ No ____ If yes, proceed to Question No. 4(A). If no, proceed to Question No. 5. 4(A). In what amount are Andrew and Pamela Aho entitled to be awarded from Defendants for fraudulent misrepresentation, including exemplary damages?
$ __________
5. Did Defendants commit silent fraud against Plaintiffs Andrew and Pamela Aho? Yes ____ No ____ If yes, proceed to Question 5(A). If you answered no to both Questions 4 and 5 your work is complete. Please notify the Court Officer. 5(A). In what amount are Andrew and Pamela Aho entitled to be awarded from Defendants for silent fraud including exemplary damages?
$ __________
6. What is the total amount of damages awarded to Andrew and Pamela Aho?
$ __________
(Plf's Brf., Ex. 5(B) (Docket no. 31).) The jury returned a verdict for the Plaintiffs. The jury completed the jury verdict form. With regard to the Kellys, the jury responded "yes" to questions 1 and 2 about whether the Debtor and Garrow-Loftis committed fraudulent misrepresentation and silent fraud. The jury awarded the Kellys $187,272 for fraudulent misrepresentation and $170,000 for silent fraud. The total amount of damages awarded to them was $357,272. Both awards included exemplary damages. For the Ahos, the jury completed the verdict form and responded "yes" to questions 4 and 5 about whether the Debtor and Garrow-Loftis committed fraudulent misrepresentation and silent fraud. The jury awarded the Ahos $132,156 for fraudulent misrepresentation and $50,000 for silent fraud. The total amount of damages awarded to them was $182,156. Like the Kelly's award, the award to the Ahos included exemplary damages.
The Debtor and Garrow-Loftis filed several post-verdict motions, which included a motion to assess common law setoff due to prior settlements, a motion for setoff of collateral source payments, a motion for judgment not withstanding the verdict, a motion for a new trial, and a motion for remittitur. The state court denied these motions. On December 20, 2007, the Genesee County Circuit Court entered an Amended Final Judgment ("Amended Final Judgment") that states in relevant part:
IT IS FURTHER ORDERED that, upon the Verdict Form rendered on September 15, 2006, a Judgment be, and hereby is, entered in favor of Plaintiffs Glen and Diana Kelly in the total amount of $357,272.000 and against Defendants Robert Moen and Garrow-Loftis, Inc., jointly and severally, a total amount which includes within it the two verdict amounts of $187,272.00 awarded by the jury to Plaintiffs Kelly on the fraudulent misrepresentation claim and $170,000.00 awarded by the jury to Plaintiffs Kelly on the silent fraud claim, inclusive of interest from the date of filing of the Complaint to the date of the rendering of the verdict. IT IS FURTHER ORDERED that, upon the Verdict Form rendered on September 15, 2006, a Judgment be, and hereby is, entered in favor of Plaintiffs' Andrew and Pamela Aho in the total amount of $182,156.00 against Defendants Robert Moen and Garrow-Loftis, Inc., jointly and severally, a total amount which includes within it the two verdict amounts of $132,156.00 awarded by the jury to Plaintiffs Aho on the fraudulent misrepresentation claim and $50,000 awarded by the jury to Plaintiffs Aho on the silent fraud claim, inclusive of interest from the date of filing of the complaint to the date of the rendering of the verdict.
IT IS FURTHER ORDERED that, pursuant to the preceding ordering paragraphs, a Final Judgment be, and it hereby is, entered in favor of Plaintiffs Glen and Diana Kelly and against Defendants Robert Moen and Garrow-Loftis, Inc., jointly and severally, in the total amount of $404,917.00 [including accumulated interest of $26,834.00 through December 31, 2007 $6,450.00 awarded by the January 9, 2007 Order and accumulated interest thereon of $361.00; and an additional $14,000 under MCR 2.403].
IT IS FURTHER ORDERED that, pursuant to the preceding ordering paragraphs, a Final Judgment be, and it hereby is, entered in favor of Plaintiffs Andrew and Pamela Aho and against Defendants Robert Moen and Garrow-Loftis, Inc., jointly and severally, in the total amount of $216,641.00 [including accumulated interest of $13,674.00 through December 31, 2007; $6,450.00 awarded by the January 9, 2007 Order and accumulated interest thereon of $361.00; and an additional $14,000 under MCR 2.403].
IT IS FURTHER ORDERED that, upon its entry, interest shall accrue on this Amended Final Judgment in favor of Plaintiffs Glen and Diana Kelly and Andrew and Pamela Aho on their respective awards as detailed above and against Defendants Robert Moen and Garrow-Loftis, Inc., jointly and severally, pursuant to MCL 600.6013( at the applicable statutory rates provided thereunder until this Amended Final Judgment is fully satisfied. IT IS FURTHER ORDERED that this is a Final Judgment pursuant to MCR 2.602(A)(3) as it disposes of all claims of all parties and closes the case.
(Compl, Ex. 1 (Docket no. 1).)
On March 5, 2008, Theodore R. Moen and Julie C. Moen filed a joint chapter 7 petition. (Case #08-30874). On June 12, 2008, the Kellys and the Ahos (the "Plaintiffs") filed a three count nondischargeability of debt complaint against the Debtor. The Plaintiffs seek a determination that the debts owed by the Debtor under the Amended Final Judgment are nondischargeable under § 523(a)(2)(A), § 523(a)(4), or § 523(a)(6). The Debtor filed an answer and affirmative defenses.
The Plaintiffs now move for summary judgment arguing that collateral estoppel bars the Debtor from relitigating the issues determined in the state civil action that are identical to the elements required under their § 523(a) nondischargeability claims. In support of their motion, the Plaintiffs filed a brief and several exhibits including copies of the Amended Final Judgment, the jury verdict form, and portions of the transcripts from the five day jury trial.
The Debtor opposes the Plaintiffs' motion. The Debtor filed a response, a brief, and numerous exhibits, which included the Debtor's affidavit and an affidavit by Mr. Jason Jones, trial counsel for the Debtor and Garrow-Loftis in the state court action. Additional exhibits filed by the Debtor included copies of: the transcripts from each day of the jury trial, affidavits filed by the Plaintiffs in the state court action, settlement agreements between the Plaintiffs and the City of Flint (who was also named as a defendant in the state court action between the Plaintiffs and the Debtor), notice of case evaluation acceptance/rejection, and several post-verdict motions filed in the state court action. The Court reviewed all of these exhibits to issue this opinion.
A hearing was held on the Plaintiffs' motion for summary judgment. During the hearing, the Court granted the Plaintiffs' request to supplement the record with additional documents filed in the state court action. At the conclusion of the hearing, the Court took this matter under advisement.
III. Applicable Law
A. Summary Judgment Standard
Fed.R.Bankr.P. 7056 renders Fed.R.Civ.P. 56 applicable in adversary proceedings. Rule 56(c) states that a
judgment sought should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.
The central inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). After adequate time for discovery and upon motion, Rule 56(c) mandates summary judgment against a party who fails to establish the existence of an element essential to that party's case and on which that party bears the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
It is the burden of the moving party to inform the Court of the basis of its motion and identify those portions of the record that establish the absence of a material issue of fact. Celotex, 477 U.S. at 323. Once the movant fulfills this responsibility, the non-moving party must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). This requires the nonmoving party to "do more than simply show that there is some metaphysical doubt as to the material facts." Id. at 586. A "dispute about a material fact is `genuine' . . . if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, 477 U.S. at 248 . To demonstrate a genuine issue, the non-moving party must present sufficient evidence upon which a jury could reasonably find for the non-movant; a "scintilla of evidence" is insufficient. Anderson v. Liberty Lobby, 477 U.S. at 252 . "A material fact is one that would have the effect of establishing or refuting one of the essential elements of a cause of action or defense asserted by the parties, and would necessarily affect the application of an appropriate principle of law to the rights and obligations of the parties." Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984).
At the summary judgment stage in the litigation, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, 477 U.S. at 249 . "The judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fairminded jury could return a verdict for the plaintiff on the evidence presented." Id. at 252. The court must believe the non-movant's evidence and draw "all justifiable inferences" in her favor. Id. at 255. Summary judgment is appropriately granted when the issues in a case involve solely the application of law to undisputed facts. Panetta v. Sondergeld ( In re Sondergeld), 327 B.R. 313, 315 (Bankr. E.D. Mich. 2005).
B. Collateral Estoppel
Collateral estoppel applies in bankruptcy dischargeability actions. Grogan v. Garner, 498 U.S. 279 (1991). A party bears the burden of proving that collateral estoppel is applicable in a dischargeability action by a preponderence of the evidence standard. Id. at 291.
In recent years, the Supreme Court has issued a series of decisions expanding the analysis that federal courts must use to determine whether to give a state judgment preclusive effect. Rather than relying solely on the judicial doctrine of collateral estoppel, a federal court must first consider whether the Full Faith and Credit Act requires it to accord the state judgment the same preclusive effect that the judgment would receive under state law. The Full Faith and Credit Act states, in relevant part, that state court "judicial proceedings shall have the same full faith and credit in every court within the United States . . . as they have by law or usage in the courts of such State . . . from which they are taken." The Sixth Circuit has held that the Full Faith and Credit Act applies in dischargeability proceedings. . . . [T]he bankruptcy court must initially determine whether a state court judgment would receive preclusive effect in the state where it was rendered. If so, the bankruptcy court must give the state court judgment preclusive effect unless it determines that an exception to the Full Faith and Credit Act exists. Cresap v. Waldorf ( In re Waldorf), 206 B.R. 858, 862 (Bankr. E.D. Mich. 1997) (quoting 28 U.S. § 1738 (citations omitted).
In this case, the Amended Final Judgment was rendered by a Michigan court. As a result, this Court must apply the Full Faith and Credit Act and give the Amended Final Judgment the same preclusive effect that is recognized by Michigan law. The Michigan Supreme Court has explained that the doctrine of collateral estoppel is "applied . . . to strike a balance between the need to eliminate repetitious and needless litigation and the interest in affording litigants a full and fair adjudication of the issues involved in their claims." Storey v. Meijer, Inc., 429 N.W.2d 169 (Mich. 1988). To preclude the relitigation of an issue in a subsequent proceeding, the collateral estoppel standard under Michigan law requires that a party establish: "(1) `a question of fact essential to the judgment must have been actually litigated and determined by a valid and final judgment;' (2) `the same parties must have had a full [and fair] opportunity to litigate the issue;' and (3) `there must be mutuality of estoppel.'" Monat v. State Farm Ins. Co., 677 N.W.2d 843, 845-46 (Mich. 2004) (quoting Storey v. Meijer, Inc., 429 N.W. 2d 169, 171 n. 3 (1988)) (alternation in original and footnote omitted).
1. Actually Litigated
A question of fact or law is actually litigated when it is "put into issue by the pleadings, submitted to the trier of fact . . ., and determined." VanDeventer v. Michigan Bank, 432 N.W.2d 338 (1988).
2. Determined by a Valid and Final Judgment
Under Michigan law, "[a]n issue is necessarily determined only if it is `essential' to the judgment. . . . Collateral estoppel applies only where the basis of the prior judgment can be ascertained clearly, definitely, and unequivocally." People v. Gates, 452 N.W.2d at 631 (citation omitted). "[A] finding upon which the judgment did not depend cannot support collateral estoppel" Bd. of Co. Comm'rs v. Schultz , 521 N.W.2d 847, 850 (Mich. Ct. App. 1994) (citations omitted). "For collateral estoppel to apply, the issues must be identical, and not merely similar." Horn v. Department of Corrections, 548 N.W.2d 660, 662 (Mich. Ct. App. 1996) (internal quotation marks and citation omitted).
3. Full and Fair Opportunity to Litigate Issue
To determine whether a party has had a "full and fair" opportunity to litigate an issue, the Supreme Court of Michigan directs courts to also consider the factors set forth in § 28 and § 29 of the Second Restatement of Judgments. Gilbert v. Ferry, 413 F.3d 578, 581-82 (6th Cir. 2005) (citing Monat v. State Farm Ins. Co., 677 N.W.2d 843, 847 n. 2 (2004) (other citations omitted). In certain circumstances and if established, the factors provided for in Sections 28 and 29 create an exception to collateral estoppel to enable a party to relitigate an issue even though it has been be actually litigated and necessarily determined under a valid and final judgment. Id. Section 28 states:
Although an issue is actually litigated and determined by a valid and final judgment, and the determination is essential to a judgment, relitigation of the issue in a subsequent action between the parties is not precluded in the following circumstances: (1) The party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action; or (2) The issue is one of law and (a) the two actions involve claims that are substantially unrelated, or (b) a new determination is warranted in order to take account of an intervening change in the applicable legal context or otherwise to avoid inequitable administration of the laws; or (3) A new determination of the issue is warranted by differences in the quality or extensiveness of the procedures followed in the two courts or by factors relating to the allocation of jurisdiction between them; or (4) The party against whom preclusion is sought had a significantly heavier burden of persuasion with respect to the issue in the initial action than in the subsequent action; the burden has shifted to his adversary; or the adversary has a significantly heavier burden than he had in the first action; or (5) There is a clear and convincing need for a new determination of the issue (a) because of the potential adverse impact of the determination on the public interest or the interests of persons not themselves parties in the initial action, (b) because it was not sufficiently foreseeable at the time of the initial action that the issue would arise in the context of a subsequent action, or (c) because the party sought to be precluded, as a result of the conduct of his adversary or other special circumstances, did not have an adequate opportunity or incentive to obtain a full and fair adjudication in the initial action.
Restatement (Second) of Judgements § 28 (1982). The exception provided under subsection (1) only applies "when review is precluded as a matter of law. It does not apply in cases where review is available but is not sought." Restatement (Second) of Judgments § 28 cmt. h.
Section 29 states:
A party precluded from relitigating an issue with an opposing party, in accordance with §§ 27 and 28, is also precluded from doing so with another person unless the fact that he lacked full and fair opportunity to litigate the issue in the first action or other circumstances justify affording him an opportunity to relitigate the issue. The circumstances to which considerations should be given include those enumerated in § 28 and also whether: (1) Treating the issue as conclusively determined would be incompatible with an applicable scheme of administering the remedies in the actions involved; (2) The forum in the second action affords the party against whom preclusion is asserted procedural opportunities in the presentation and determination of the issue that were not available in the first action and could likely result in the issue being differently determined; (3) The person seeking to invoke favorable preclusion, or to avoid unfavorable preclusion, could have effected joinder in the first action between himself and his present adversary; (4) The determination relied on as preclusive was itself inconsistent with another determination of the same issue; (5) The prior determination may have been affected by relationships among the parties to the first action that are not present in the subsequent action, or apparently was based on a compromise verdict or finding; (6) Treating the issue as conclusively determined may complicate determination of issues in ths subsequent action or prejudice the interests of another party thereto; (7) The issue is one of law and treating it as conclusively determined would inappropriately foreclose opportunity for obtaining reconsideration of the legal rule upon which it was based; ( Other compelling circumstances make it appropriate that the party be permitted to relitigate the issue.
Restatement (Second) of Judgments § 29 (1982).
4. Mutuality of Estoppel
The mutuality of estoppel requirement is satisfied when the party in the subsequent proceeding was "a party, or in privy to a party, in the previous action." Monat v. State Farm Ins. Co., 677 N.W.2d at 846 (holding that the mutuality of estoppel element is not required when collateral estoppel is being used defensively) (citations omitted). "In other words, the estoppel is mutual if the one taking advantage of the earlier adjudication would have been bound by it, had it gone against him." Id. (citations omitted).
IV. Discussion
A. Plaintiffs are entitled to summary judgment on their Section 523(a)(2)(A) claim
Section 523(a) states that a
discharge under [§] 727 . . . does not discharge an individual debtor from any debt — (2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by — (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's or an insider's financial condition[.]
Each of the following elements must be proven by a creditor to except a debt from discharge under Section 523(a)(2)(A):
(1) the debtor obtained money . . . [property, services, . . . or an extension . . . of credit] . . .; (2) through a material misrepresentation; (3) that, at the time, the debtor knew was false or made with gross recklessness as to its truth; (4) the debtor intended to deceive the creditor; (5) the creditor justifiably relied on the false representation; and (6) its reliance was the proximate cause of the loss. Rembert v. AT T Universal Card Services, Inc., ( In re Rembert), 141 F.3d 277, 280-81 (6th Cir. 1998) (citing Longo v. McLaren ( In re McLaren), 3 F.3d 958, 961 (6th Cir. 1993)).
Under 523(a)(2)(A), "[f]alse representations and pretenses encompass statements that falsely purport to depict current or past facts." Haney v. Copeland ( In re Copeland), 291 B.R. 740, 760 (Bankr. E.D. Tenn. 2003) (quoting Peoples Sec. Fin. Co., Inc., v. Todd ( In re Todd), 34 B.R. 633, 635 (Bankr. W.D. Ky. 1983). "`False pretense' involves implied misrepresentation or conduct intended to create and foster a false impression, as distinguished from a `false representation' which is an express misrepresentation." Id. (other citations omitted).
The Plaintiffs contend that each of the elements under § 523(a)(2)(A) were actually litigated and necessarily determined by the jury verdict and under the Amended Final Judgment. As a result, the Plaintiffs assert that there they should not be required to relitigate these issues in this adversary proceeding.
The mutuality of estoppel element is met as the Plaintiffs and the Debtor are identical parties in the state court civil action and this adversary proceeding, which is a different cause of action. The state civil action ended upon the entry of the Amended Final Judgment, which is a valid final judgment between the parties to satisfy that collateral estoppel requirement under Michigan law.
The Court also concludes that the other two requirements — actually litigated and necessarily determined — have been proven by the Plaintiffs. The record of the state court civil action establishes the actually litigated requirement. There is no dispute that the Debtor fully participated in the state court civil action. The Debtor filed an answer, engaged in discovery, participated in case evaluation, testified at the jury trial, and filed numerous post-verdict motions.
Turning to the necessarily determined element, the Court notes that
Bankruptcy courts in Michigan have uniformly concluded that the elements of a fraud claim under Michigan law are virtually identical to the elements necessary to determine non-dischargeability under § 523(a)(2)(A). As is shown by comparing the two sets of fraud elements [under § 523(a)(2)(A) and Michigan common law fraud], . . . [t]he elements of a dischargeability case under 11 U.S.C. § 523(a)(2)(A) for false misrepresentation and fraud are virtually identical to the elements that Michigan requires to establish fraudulent misrepresentation. Thus, a state court judgment based upon fraud necessarily encompasses a finding of all the elements of Section 523(a)(2)(A) and is entitled to collateral estoppel effect in a subsequent bankruptcy court action. Transnation Title Ins. Co. v. Livingston ( In re Livingston), 368 B.R. 610, 617-18 (Bankr. E.D. Mich. 2007) (citations omitted).
The jury instructions along with the rest of the transcripts of the five day jury trial in the record in this proceeding definitely indicate that each of the elements necessary to prove false misrepresentation or fraud under § 523(a)(2)(A) were necessarily determined by the jury in the state court action. The jury heard the evidence, weighed the credibility of the various witnesses, and rendered a verdict against the Debtor. As a result, the Court concludes that each of the requirements for issue preclusion under Michigan law are satisfied in the Plaintiffs' § 523(a)(2)(A) fraudulent misrepresentation claim.
The Debtor contends that the Plaintiffs cannot establish that the Debtor had a full and fair opportunity to litigate the issues in the state civil action. The Debtor's affidavit states that he did not pursue an appeal due to his limited financial means. (Def.'s Resp. Ex. 17 (Docket no. 42).) The Debtor argues that this reason indicates that the state court action was not fully litigated. The Court disagrees.
In Monat v. State Farm Ins. Co., 677 N.W.2d 843, 847 (2004), the Michigan Supreme Court determined that a party who voluntarily waived his right to appeal had still received a full and fair opportunity to litigate the issue. As recognized by the court in Monat, the "general rule permits relitigation when the party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment in the initial action." Id. (quoting Restatement (Second) of Judgments § 28(1)) (internal quotations omitted). In the Debtor's case, like the party in Monat, the Debtor was not precluded as a matter of law from obtaining a review of the state court action. He voluntarily chose not to continue to pursue his appellate rights once Garrow-Loftis decided to cease appellate review for financial reasons. While the Court has no reason to doubt the Debtor's explanation about his limited financial resources, this explanation is insufficient under Michigan law to prevent the establishment of the "full and fair opportunity to litigate the issue" element required for collateral estoppel.
The Court turns next to another argument made by the Debtor about the type of review of the state court proceeding this Court must conduct. In his response, the Debtor contends that this "Court now has the power to set the record straight in this matter." (Def.'s Resp. at 7-8 (Docket no. 41).) The Debtor also argues that "[w]hile the jury did make a finding in [the state court] case in favor of the Plaintiffs, as this Court can see by the voluminous exhibits attached hereto, the great weight of evidence did not support a finding of fraud on the part of the Debtor." (Def.'s Resp. at 8 (Docket no. 41).) The Debtor then goes on his response to raise numerous procedural and evidentiary arguments that he asserts are "examples of appealable error[s]." (Def.s' Resp. at 26-29 (Docket no. 41).) None of these arguments may be considered by this Court. These types of arguments by the Debtor should have been raised in the state court or been raised on appeal from the state court. The type of review of the state court civil action the Debtor suggests that this Court must make is contrary to and precluded by the Full Faith and Credit Act. Bay Area Factors v. Calvert ( In re Calvert), 105 F.3d 315 (6th Cir. 1997) (recognizing that the Full Faith and Credit Act applies without exception in dischargeability proceedings). Under the Full Faith and Credit Act, this Court is to refrain from acting as an appellate court and may not consider collateral attacks on the Amended Final Judgment. Cresap v. Waldorf ( In re Waldof), 206 B.R. 858, 868 (Bankr. E.D. Mich. 1997) (explaining that a debtor cannot use a bankruptcy court to appeal a state court judgment). In this proceeding, the Full Faith and Credit Act requires this Court to look to and apply the principles of collateral estoppel, as recognized under Michigan law, to the state court civil action. As previously stated, the Court determines that the Plaintiffs are entitled to summary judgment on Count I of their Complaint because each of the required collateral estoppel elements under Michigan law are satisfied in the Plaintiffs' § 523(a)(2)(A) fraudulent misrepresentation claim to bar the Debtor from relitigating these issues in this Court.
B. Plaintiffs are not entitled to summary judgment on their Section 523(a)(4) claim
Plaintiffs argue that collateral estoppel prevents the Debtor from disputing that the debts he owes them under the Amended Final Judgment are nondischargeable "for fraud or defalcation while acting in a fiduciary capacity" under § 523(a)(4). The Debtor disagrees.
The Sixth Circuit Court of Appeals in In re Bucci, 493 F.3d 635 (6th Cir. 2007), explained the meaning of the phrase "defalcation while acting in a fiduciary capacity" by quoting from several prior decisions.
A debt is nondischargeable as a defalcation when the preponderance of the evidence establishes: "(1) a preexisting fiduciary relationship; (2) breach of that fiduciary relationship; and (3) a resulting loss." In re Blaszak, 397 F.3d at 390.
The Sixth Circuit "construes the term `fiduciary capacity' found in the defalcation provision of § 523(a)(4) more narrowly than the term is used in other circumstances." In re Blaszak, 397 F. 3d at 391. In Carlisle Cashway, Inc. v Johnson ( In re Johnson), 691 F.2d 249, 251-52 (6th Cir. 1982), and In re Interstate Agency, 760 F.2d at 125, we limited the application of the defalcation provision to express or technical trusts and refused to extend it to constructive or implied trusts imposed by operation of law as a matter of equity. The decisions in those cases relied on the Supreme Court's holding in Davis v. Aetna Acceptance Co., 293 U.S. 328, 333, 55 S.Ct. 151, 153, 79 L.Ed. 393 (1934) that the defalcation provision applies only to express or technical trusts. Again in In re Garver, we adopted a narrow definition of the defalcation provision and held that it does not apply to someone who merely fails to meet an obligation under a common law fiduciary relationship. In re Garver, 116 F.3d at 179. . . . Accordingly, the defalcation provision applies to "only those situations involving an express or technical trust relationship arising from placement of a specific res in the hands of the debtor." In re Garver, 116 F.3d at 180.
To establish the existence of an express or technical trust, a creditor must demonstrate: "(1) an intent to create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary." (citation omitted) In re Bucci, 493 F.3d at 639-640 .
The only collateral element established by the Plaintiffs on their § 523(a)(4) claim is mutuality of estoppel. Plaintiffs and the Debtor are the same parties to the state court civil action and in this adversary proceeding. The remaining collateral estoppel elements: actually litigated, necessarily determined by a valid and final judgment, and the full and fair opportunity to litigate the issue were not proven by the Plaintiffs.
As acknowledged by the Plaintiffs in their brief, their state court civil action against the Debtor was limited to two theories — fraudulent misrepresentation and silent fraud. These were the ultimate issues in their civil action. The issue under Plaintiffs' § 523(a)(4) claim is whether the Debtor breached fiduciary duties he owed to the Plaintiffs due to the existence of an express or technical trust. There is nothing in the record before the Court to indicate that the issue of the existence of an express trust or technical trust was actually litigated and necessarily determined in the state civil action or under the Amended Final Judgment. The Debtor's breach of any fiduciary duties he owed the Plaintiffs based on the existence of an express or technical trust relationship were not pled, raised in or a part of their state court civil action and were not essential to the Amended Final Judgment. At most, the issue of the Debtor's breach of the fiduciary duties he owed to them as their real estate agent was involved. Yet, this type of fiduciary relationship "is insufficient to establish the necessary fiduciary relationship for defalcation under § 523(a)(4)." R.E. America, Inc. v. Garver ( In re Garver), 116 F.3d 176, 179 (6th Cir. 1997). Collateral estoppel does not apply to prevent the Debtor from challenging the Plaintiffs' § 523(a)(4) claim. The Plaintiffs request for summary judgment on Count II of their Complaint is denied.
C. Plaintiffs are not entitled to summary judgment on their Section 523(a)(6) claim
The Plaintiffs also seek a determination that the debts owed to them by the Debtor under the Amended Final Judgment are nondischargeable under § 523(a)(6). Section 523(a) states that a
discharge under [§] 727 . . . does not discharge an individual debtor from any debt — (6) for willful and malicious injury by the debtor to another entity or to the property of another entity[.]
Based on statute's plain language, the debt "must be for an injury that is both willful and malicious. The absence of one creates a dischargeable debt." Markowitz v. Campbell, ( In re Markowtiz), 190 F.3d 455, 463 (6th Cir. 1999). Debts that arise from reckless or negligent acts are not encompassed within § 523(a)(6). Kawaauhau v. Geiger, 523 U.S. 57, 63, 118 S.Ct. 974, 978 (1998). Instead, debts that arise from those acts undertaken with the actual intent to cause injury fall squarely within § 523(a)(6). Id. As explained by the Geiger court:
The word `willful' in (a)(6) modifies the word `injury,' indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Had Congress meant to exempt debts resulting from unintentionally inflicted injuries, it might have described instead `willful acts that cause injury.' Or, Congress might have selected an additional word or words, i.e., `reckless' or `negligent' to modify `injury.' Kawaauhau v. Geiger, 523 U.S. at 62-3, 118 S.Ct. at 977 (emphasis in original). With citation to the Restatement (Second) of Torts, the Geiger court also explained that "the (a)(6) formulation triggers in the lawyer's mind the category `intentional torts,' as distinguished from negligent or reckless torts. Intentional torts generally require that the actor intend `the consequences of an act,' not simply `the act itself.'" Id. (quoting Restatement (Second) of Torts § 8A, Comment a, p. 15 (1964)) (emphasis in original).
In Markowitz v. Campbell ( In re Campbell), 190 F.3d 455, (6th Cir. 1999), the Sixth Circuit Court of Appeals applied and expanded on the Geiger analysis of § 523(a)(6) to hold that "unless `the actor desires to cause [the] consequences of his act, or . . . believes that the consequences are substantially certain to result,' . . . he has not committed a `willful and malicious injury' as defined under § 523(a) (6)." 190 F.3d at 464 (quoting Restatement (Second) of Torts § 8A, at 15 (1964)).
In the context of § 523(a)(6), the term "malice" was defined long ago by the United States Supreme Court in Tinker v. Colwell, 193 U.S. 473, 24 S.Ct. 505 (1904) as meaning "a wrongful act, done intentionally, without just cause or excuse." 193 U.S. at 485-86 (interpreting analogous § 17(a)(2) of the former Bankruptcy Act) (internal quotation marks and citation omitted). Alternatively, "malicious" means "in conscious disregard of one's duties." Monsanto Co., v. Trantham ( In re Trantham), 304 B.R. 298, 308 (B.A.P. 6th Cir. 2004).
The Plaintiffs make two arguments in support of their § 523(a)(6) claim. First, they argue that each of the collateral estoppel elements are met under their § 523(a)(6) because the intentional torts that underlie the Amended Final Judgment fulfill the "willful and malicious" standard of § 523(a)(6). Second, the Plaintiffs argue that the jury's award of exemplary damages to both of them required the jury to find that the Debtor's actions were willful and malicious. The Plaintiffs' position is not supported by the record of the state court civil action.
Applying the collateral estoppel elements to the Plaintiffs' § 523(a)(6) claim, the Court, once again, determines that the mutuality of estoppel element is fulfilled because the Plaintiffs and the Debtor are the same parties involved in the prior state civil action and in this adversary proceeding, which involves different causes of action. The more problematic collateral estoppel elements for the Plaintiffs are whether the willful and malicious standard of § 523(a)(6) were actually litigated and necessarily determined in the state civil action.
In reviewing the relevant counts of the Plaintiffs' complaint, the focus of the allegations against the Debtor consisted of the Plaintiffs' purchase of lots in the Sugar Maple Farms development and then the construction of new homes based on representations made by the Debtor; that the Debtor (along with other defendants) made material misrepresentations to them about their ability to occupy their homes; that the Debtor failed to inform them of the "litany of contractual, financial, political, or administrative" problems that existed or about the water, sewer, and utilities connection problems; that the Plaintiffs' relied on the Debtor's misrepresentations and omissions to their detriment; and had suffered significant damages as a result. The Plaintiffs asserted that these allegations constituted fraudulent misrepresentation and silent fraud. Noticeably absent from these claims are any allegations that the Debtor intentionally sought to harm or injure the Plaintiffs and that he did so in conscious disregard of any duties without just cause or excuse. As a result then the Court determines that Plaintiffs' § 523(a)(6) claim is not identical to the issues raised in their state court civil action.
The Court now turns to the Plaintiffs' argument that the willful and malicious standard is satisfied solely based upon the jury's award of exemplary damages to the Plaintiffs. The jury instructions given by the state court to the jury provided that
the plaintiff[s] are also asking for something called exemplary damages. And that's a class of compensatory damages that allow for compensation of injury to feelings. In order to justify an award of exemplary damages, the act or conduct complained of must be voluntary and the act must inspire feelings of humiliation, outrage and indignity. The act or conduct must also be malicious or so wilful and wanton . . . as to demonstrate a reckless disregard of the plaintiff[s'] rights.
(Def.'s Resp., Ex. 5, Tr. at 163-64, September 14, 2006) ("Tr. 9/14/06") (Docket no. 41).) The state court instructed the jury that the phrase "wanton misconduct" means "conduct or a failure to act that shows such indifference to whether harm will result as to be equal to a willingness that harm will result." (Tr. 9/14/06 at 159). The jury was further instructed that the phrase "wilful misconduct means conduct or failure to act that was intended to harm the plaintiffs." (Tr. 9/14/06 at 159). The legal standard under § 523(a)(6) is quite different than the exemplary damages standard explained to the jury.
The Court concludes that the elements under § 523(a)(6) were not a part of or essential to the state court civil action or the Amended Final Judgment. The Court will deny the Plaintiffs' request for summary judgment on Count III of their Complaint based on application of collateral estoppel principles.
V. Conclusion
After a thorough and careful review of the pleadings and transcripts of the state civil case, this Court concludes that the Plaintiffs established each of the collateral estoppel elements under Michigan law with regard to the Debtor's fraudulent misrepresentation to prevent the Debtor from relitigating the elements under § 523(a)(2)(A) in this proceeding. These issues were actually litigated and determined by the jury verdict rendered in the prior state court action and subsequently incorporated into the Amended Final Judgment. As a result, the Plaintiffs are entitled to summary judgment as to Count I of their Complaint. The Court further concludes that the Plaintiffs failed to prove that the required elements of their claims for nondischargeability under § 523(a)(4) and § 523(a)(6) were actually litigated and determined by the Amended Final Judgment. Therefore, the Plaintiffs are not entitled to summary judgment as to Counts II and III of their Complaint. In reaching these conclusions, the Court carefully reviewed the exhibits submitted by the parties and considered all of the parties' arguments, regardless of whether or not they are specifically referred to in this opinion. The Court will enter a separate order consistent with this opinion.
IN RE MOEN•Case No: 08-30874, Adv. Pro. No: 08-03101., 28 (Bankr. E.D. Mich. Mar 29, 2010)
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untanglingwebs
El Supremo
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Flint on trial in $1.2-million Sugar Maple Farms lawsuit
Marjory Raymer | mraymer@mlive.com By Marjory Raymer | mraymer@mlive.com
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on May 23, 2008 at 6:34 PM, updated May 23, 2008 at 6:59 PM
FLINT, Michigan -- The trial in a $1.2 million lawsuit against the city of Flint over a stagnated residential development will continue next week.
Flint Journal extras
The issue:
• The city of Flint is being sued for $1.2 million because a developer claims the city blocked construction at a residential development called Sugar Maple Farms. The trial enters its second week on Tuesday.
Developer Marvin Riley claims the city wrongly blocked construction at Sugar Maple Farms, a planned subdivision on Kearsley Lake Golf Course.
Mayor Don Williamson and other city officials already have testified in the case now before Genesee Circuit Judge Geoffrey L. Neithercut. The civil trial will enter its second week Tuesday.
The city claims Riley did not apply for building permits after it rejected a tax abatement he requested, but Riley said he was refused because Williamson wanted him to pay the city $189,000 for the property.
Riley said he doesn't owe the money because he obtained the subdivision for $400,000 during bankruptcy proceedings.
"They wanted me to pay a debt I didn't owe," Riley told The Flint Journal on Friday during a break in the trial. "I bought it free and clear in bankruptcy court."
Riley said Mayor Don WIlliamson became enraged that Riley refused to pay the city, and that the mayor blocked him from obtaining building permits and a tax abatement.
Riley secretly taped the mayor when they met over the issue. A transcript of the tape was entered into court and has been part of court proceedings.
Williamson testified on Thursday, and he said he did not recall meeting Riley.
Riley applied for tax abatements, but he was denied by the city.
He told The Journal on Friday that even without the tax abatements, he would have proceeded with the development had he been able to obtain a building permit.
But attorney George Hamo, representing the city, said Riley never applied for building permits after his application for the tax abatements was rejected.
"(Riley) never went back to apply again," Hamo said. "He would have gotten (the permits)."
Hamo said tax abatements are designed to encourage building in areas that need economic help, and Sugar Maple Farms, near the Genesee Township border, did not meet that criteria.
City assessor William Fowler testified on Friday that he gave Riley the application forms for the tax abatement, but that he did not know whether the tax breaks had a good chance to be approved by the administration.
flintfan32
flintfan32 May 24, 2008
Mr jankowski-I have seen your show a few times when it was on. You are anti-mayor on everything & that is your right.
But your facts are wrong. The 130 you mention was money the court had the city loan the project to finish it. That was paid back. The mortgage of 189 was not paid back. Both were owed to the city. Not the same money as you claim.
Riley was told he could get permits. He wanted the tax abatement. No one has an unconditional right to a tax abatement. He applied for one & when told it wasn't ging to happen kept reapplying instead of just getting permits like evryone else. I am sorry but our city cannot afford tax abatements. Maybe you think everyone who asks for them should get them. Maybe every resident should apply for them, then we wouldn't have any revenue.
There was separate diverted money riley didn't tell any of the secured creditors about. It's all in the court records. Try 450 thousand.
Mr jankowski-for some one who "did the show" you missed out on all the facts in the court records. Of course they probably didn't fit into your show's "spin". But they are the true facts, are in the court records, & all you had to do was check them. As one who hols himself out as a journalist you should have at least checked out the bankruptcy & circuit court records. If you did you would see that what I have said is correct.
But again I realize that what really occurred won't fit into your constant attacks on the administration. But again that is your right-just try to do it truthfully.
tjankowski
tjankowski May 24, 2008
Posted by flintfan32 on 05/23/08 at 9:36PM
If the city was owed money why should the guy get tax abatements? What I heard was the guy diverted money in bankruptcy that should have gone to the city. If that's true he shouldn't get anything.
Hey FlintFan32?? Why don't you pay the 189,000 owed the city. You have just as much responsibility to pay it as he does?
Again making accusations not based on any truth whatsoever! you are correct. The money did go to the developers! BECAUSE THE CITY DIDN'T SHOW UP IN COURT!!! When the city didn't show up to make a claim. They weren't paid! The courts kept aside an amount for those that failed to appear. And the City failed to appear!
flintfan32
flintfan32 May 24, 2008
ntw-ypu miss the point of oosl2 & overall. If there are tax abatements the city doesn't get property taxes. All williamson wanted was the money owed to the city-I don't see what is wrong with that at all.
If you knew anything about riley's contract, you would know that it was not disclosed to anyone including the court, but it gave hundreds of thousands of dollars to the developers instead of where it should have gone-to the secured creditors in bankruptcy court. The city was the top secured creditor, and all williamson is trying to do is get the money the city is owed.
This riley guy was trying to pull a fast one and got caught.
00sl2
00sl2 May 23, 2008
Didn't the original problem start because Riley thought he bought the property free and clear in bankruptcy proceedings when the original owner owed delinquent property taxes? Aren't ALL taxes a priority to be paid in a bankruptcy, thus should have been paid from the bankruptcy? And if the bankruptcy estate didn't have enough money to pay those taxes shouldn't they have been paid from the proceeds of sale of the property? Seems the real problem lies back in the bankruptcy estate.
Williamson was trying to collect money rightfully owed to the City, not only for this property, but others as well. |
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