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Sequatchie Mountain Creditors v. Lile

United States District Court, N.D. Ohio, Eastern Division

March 23, 2018

SEQUATCHIE MOUNTAIN CREDITORS, PLAINTIFFS/APPELLANTS,
v.
JENNIFER LILE, Representative of the Estate of Deceased Joseph J. Detweiler, DEFENDANT/APPELLEE.

          MEMORANDUM OPINION

          HON. SARA LIOI, UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the appeal pursuant to 28 U.S.C. § 158(a)(1) by plaintiffs/appellants[1] Sequatchie Mountain Creditors (“plaintiffs”) from the following two orders in favor of defendant/appellee Jennifer Lile (“defendant”) entered by the United States Bankruptcy Court, Northern District of Ohio, in plaintiffs' adversary case (No. 09-6118): (1) the order and related memorandum opinion, In re Detweiler, No. 09-6118, 2017 WL 650062 (Bankr.N.D.Ohio Feb. 16, 2017), and (2) the order and related memorandum opinion, In re Detweiler, No. 09-6118, 2017 WL 1483489 (Bankr.N.D.Ohio Apr. 25, 2017). (See Doc. No. 6-1 (Second Amended Notice of Appeal) at 1229-32.)

         Both plaintiffs and defendant filed their respective briefs[2] and appendices[3] thereto, and the appeal is ripe for decision. For the reasons that follow, the bankruptcy court's orders are affirmed.

         I. BACKGROUND

         This case has an extensive factual and procedural history, which is briefly summarized here for context. The Court will provide greater detail later in this opinion as necessary for the Court's analysis.

         The adversary case underlying this appeal arose in the chapter 11 bankruptcy proceeding of Joseph Detweiler (“Detweiler”), [4] who filed his bankruptcy petition on August 17, 2009.[5]Detweiler was the sole owner and director of J.J. Detweiler Enterprises, Inc. (“JJDEI”) and Sequatchie Mountain LLC (“Sequatchie LLC”). Sequatchie LLC was established by Detweiler to facilitate the Sequatchie Pointe project (“Sequatchie Pointe”), a planned development of over 6, 756 acres of land straddling Marion County Tennessee and Dade County Georgia. Lots were sold between October 2006 and October 2008 by the Sequatchie Pointe sales force. Plaintiffs purchased undeveloped lots at Sequatchie Pointe. In re Detweiler, 2017 WL 650062, at *1-2. They allege that Detweiler's misrepresentations and fraudulent conduct related to their land purchases resulted in $13, 500, 000.00 of nondischargeable damages under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6). Id.

         The bankruptcy court granted summary judgment in favor of Detweiler on all plaintiffs' adversary claims under § 523(a)(4) and (a)(6), and the § 523(a)(2)(A) claims of plaintiffs Wesley Jinks, Mary Czajka, Ana Rodriguez, William King, Manuel Real, Gene Renz, Joyce Renz, and the Estate of John Hallman. That decision is not on appeal here. The bankruptcy court then conducted a four-day trial on the remaining plaintiffs' § 523(a)(2)(A) claims, and rendered its decision on February 16, 2017.[6]

         The bankruptcy court ruled against defendant and in favor of the § 523(a)(2)(A) claims of plaintiffs George Stone, Susan Stone, Charles McAvoy, Ellen McAvoy, Marvin Ferkinhoff, and Carol Ferkinhoff.[7] In so ruling, the bankruptcy court found that Detweiler was responsible for false representations made with an intent to deceive these plaintiffs regarding the existence of bonds covering the roads for lots purchased on the Georgia side of Sequatchie Pointe. See Id. at *14, 19, 22. The bankruptcy court rendered judgment in favor of defendant on all other claims, including plaintiffs' claims that Detweiler was responsible for false representations concerning project completion deadlines, which are now at issue here on appeal. Id. at * 22.

         The losing plaintiffs filed a motion in the adversary case to alter or amend judgment, which was denied. In re Detweiler, 2017 WL 1483489, at *1. Plaintiffs appealed the bankruptcy court's rulings from the trial and upon reconsideration. No cross-appeal was filed. Upon election by defendant/appellee, the appeal was transferred by the Bankruptcy Appellate Panel of the Sixth Circuit to the Northern District of Ohio. (Doc. No. 1-5.)

         II. ISSUES ON APPEAL

         Plaintiffs identify three items in the statement of issues:

1. Did the trial court err by finding against the Plaintiffs because Detweiler's agents made fraudulent representations rather than Detweiler making the fraudulent representations?
2. Did the trial court err by finding Detweiler was not liable for the actions and or inactions of his agents, employees, and independent contractors?
3. Did the trial court err by not applying Tennessee law when the Plaintiffs were defrauded in Tennessee land purchases and Tennessee had the most significant contracts to the allegations?

(Pls. Br. at 1151.)

As plaintiffs describe it,
[t]he crux of this appeal turns on the issue of whether Detweiler can be held liable for the fraudulent actions and inactions of his agents. This case presents a slightly more nuanced question about who possessed the requisite knowledge to knowingly make a material misrepresentation to the purchasers. Detweiler certainly knew that the development was financially inviable and admitted as much during his deposition. However, while instructions to invent construction deadlines were given to the salespeople, none of them had knowledge of the financial invaibility [sic] of the development. As that salesforce was working for Detweiler, and by not informing the staff that these sales representations were false, Detweiler must be held liable for those fraudulent misrepresentation [sic] - and the analysis needs to focus on what Detweiler knew, and when, rather than what the salespeople knew. . . . The trial court erred by examining whether the sales people were aware of the inviability of the project.

(Id. at 1172-74.)

         The issues on appeal focus on questions of agency law, and the choice of law applicable thereto. But the underlying premise asserted in the statement of issues regarding Detweiler's liability is that the Sequatchie Pointe sales force made fraudulent representations about project completion deadlines. The bankruptcy court ruled, however, that neither Detweiler nor the Sequatchie Pointe sales force made false representations with an intent to deceive plaintiffs regarding project completion deadlines. See In re Detweiler, 2017 WL 650062, at *15-16.

         Although not specifically identified in the statement of issues, plaintiffs challenge the bankruptcy court's rulings on issues of both fact and law concerning the premise underlying their statement of issues-allegedly false representations made to plaintiffs with an intent to deceive about construction timelines. (See e.g. Pls. Br. at 1174 (“Several other errors are present in the trial court's holding, which are elucidated throughout this brief.”).) “[A] district court reviewing a bankruptcy court ruling is subject to the same limitations imposed on any appellate tribunal.” In re H & S Transp. Co., Inc., 110 B.R. 827, 830 (M.D. Tenn. 1990), aff'd, 939 F.2d 355 (6th Cir. 1991) (citing In re Caldwell, 851 F.2d 852 (6th Cir. 1988)). Therefore, the Court will consider alleged errors by the bankruptcy court argued in plaintiffs' and defendant's briefs even though those errors are not specifically identified in the statement of issues. See Union Oil Co. of Cal. v. Prof'l Realty Invs., Inc., 72 F.3d 130 (Table), 1995 WL 717021, at *11 n.4 (6th Cir. 1995) (appellate court may exercise its discretion to consider an issue on appeal that is thoroughly argued in the briefs even if not identified in the statement of issues); cf. In re Teal, No. 4:14-CV-15, 2015 WL 1206802, at *2 (E.D. Tenn. Mar. 17, 2015) (“Federal Rule of Bankruptcy Procedure 8006 requires that the appealing party state before the bankruptcy court the issues upon which it bases its appeal. When ‘there are no exceptional circumstances, failure to comply with Rule 8006 waives the omitted issue on appeal.'”) (quoting In re Am. Cartage, Inc., 656 F.3d 82, 91 (1st Cir. 2011)).

         III. APPLICABLE LAW

         A. Standard of Review

         A federal district court has jurisdiction to hear appeals from “final judgments, orders, and decrees” of the bankruptcy court. 28 U.S.C. § 158(a). Plaintiffs' adversary claims are brought pursuant to 11 U.S.C. § 523, which governs exceptions to the dischargeability of a debt in bankruptcy. “‘A bankruptcy court's judgment determining dischargeability is a final and appealable order.'” In re Cottingham, 473 B.R. 703, 705 (B.A.P. 6th Cir. 2012) (quoting Cash Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (B.A.P. 6th Cir. 2007) (further citation omitted)).

         “Determinations of dischargeability under 11 U.S.C. § 523 are conclusions of law reviewed de novo. De novo review requires the appellate court [to determine] the law independently of the trial court's determination.” In re Cottingham, 473 B.R. at 705 (alteration in original) (internal citations and quotation marks omitted) (further citation omitted).

         “However, [t]he factual findings underlying the bankruptcy court's dischargeability ruling are upheld on appeal unless they are clearly erroneous. A bankruptcy court's findings of fact should not be disturbed simply because another trier of fact might construe the facts differently or reach a different conclusion.” Id. at 705-06 (internal citations and quotation marks omitted) (further citation omitted). “If two views of the evidence are possible, the trial judge's choice between them cannot be clearly erroneous.” Gen. Motors Acceptance Corp. v. Cline, No. 4:07 CV 2576, 2008 WL 2740777, at *3 (N.D. Ohio July 3, 2008) (citing Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573-75, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985)). Moreover, “due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.” In re Aubiel, 534 B.R. 300, 302 (B.A.P. 6th Cir. 2015) (quoting Lester v. Storey (In re Lester), 141 B.R. 157, 160 (S.D. Ohio 1991) (citing Fed.R.Bankr.P. 8013)).[8] Thus, “[a] factual determination should be upheld unless[, ] although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” In re Cottingham, 473 B.R. at 706 (internal citations and quotation marks omitted) (further citation omitted); see also In re LWD, Inc., 340 B.R. 363, 366 (W.D. Ky. 2006) (“This circuit has clearly enunciated that findings of facts of a bankruptcy court should not be disturbed . . . unless there is most cogent evidence of mistake or miscarriage of justice.”) (internal quotation marks omitted) (quoting In re Edward M. Johnson and Assocs., 845 F.2d 1395, 1401 (6th Cir. 1988)).

         B. 11 U.S.C. § 523(a)(2)(A)

         Plaintiffs' adversary claims are brought pursuant to 11 U.S.C. § 523(a)(2)(A), which provides that an individual debtor is not discharged from a debt “for money, property, services, or an extension, renewal, or refinancing of credit to the extent [the debt] is obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor's ... financial condition[.]”[9] 11 U.S.C. § 523(a)(2)(A).

         The Sixth Circuit has summarized the elements of a § 523(a)(2)(A) [false representation] claim as follows:

(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth;
(2) the debtor intended to deceive the creditor;
(3) the creditor justifiably relied on the false representation; and
(4) its reliance was the proximate cause of loss.

In re Donley, No. 13-60758, 2014 WL 1577236, at *4 (Bankr.N.D.Ohio Apr. 17, 2014) (quoting Rembert v. AT & T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir. 1998)). The first element is comprised of two parts, and some courts break those two parts into separate elements. See Id. at *4 n.2.

         In order to “ensure that the Congressional policy in favor of providing a debtor with a fresh-start is furthered, exceptions to dischargeability, including that brought under 523(a)(2)(A), are narrowly construed.” In re Finnegan, 428 B.R. 449, 453 (Bankr.N.D.Ohio 2010) (citing Ewing v. Bissonnette (In re Bissonnette), 398 B.R. 189, 193 (Bankr.N.D.Ohio 2008)). It is plaintiffs' burden to establish by a preponderance of the evidence that the debt at issue is excepted from discharge. In re Ireland, 441 B.R. 572, 582 (Bankr. W.D. Ky. 2011) (citing In re Molino, 225 B.R. 904, 907 (B.A.P. 6th Cir. 1998)); In re Finnegan, 428 B.R. at 453 (same) (citing Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)). Exceptions to the discharge of a debt are construed strictly against the creditor and liberally in favor of the debtor. In re Ireland, 441 B.R. at 582 (citing Gleason v. Thaw, 236 U.S. 558, 561-62, 35 S.Ct. 287, 59 L.Ed. 717 (1915)).

         IV. DISCUSSION

         Plaintiffs' legal and factual challenges to the bankruptcy court's rulings that neither Detweiler nor the Sequatchie Pointe sales force made false representations about construction completion timelines with an intent to deceive revolve around ...


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