REALTOR CANNOT HIDE IN BANKRUPTCY WHEN YOU ARE SOLD A MOLD FILLED HOME. 235-1970

HOME SELLER ATTEMPTS TO DISCHARGE IN BANKRUPTCY HOME SALE FRAUD JUDGEMENT

After Robert and Gertrude Grenier sold their house to Craig and Donna Nehasil, the Nehasils discovered defects in the house that the Greniers had concealed from
them (and from a previous would-be buyer). [1]

This post by Flint Bankruptcy Attorney Terry Bankert . Flint Bankruptcy Lawyer Terry Bankert can be reached at 1-810-235-1970 or http://www.attorneybankert.com


The Nehasils sued for fraud in Michigan state court, winning nearly $300,000. When the Greniers sought to discharge that judgment in their Chapter  bankruptcy proceeding, the Nehasils sued to stop them. [1]



FRAUD JUDGEMENTS ARE NON DISCHARGABLE IN BANKRUPTCY

The bankruptcy and district courts sided with the Nehasils and deemed the fraud judgment nondischargeable. We affirm. No. 10-2242 [1] In re Grenier.

Discharge Availability

In Michigan a discharge is available to a debtor who has not obtained a discharge in a prior Chapter 7 bankruptcy case within eight years before the commencement of the previous case. In other words, debtors must wait eight years after a Chapter 7 discharge to file another starting from the filing date of the discharged case. 11 USC 727(a)(8). After a discharge has been obtained in a prior Chapter 12 or Chapter 13 bankruptcy case, a discharge is available in a subsequently filed Chapter 7 case filed more than six years before the commencement of the previous case, unless payments under the plan in the previous case totaled at least 100 percent of the allowed unsecured claims or payments totaled at least 70 percent of such claims and the plan was proposed by the debtor in good faith and was the debtor’s best efforts. However, it may not be enough in the latter case that the debtor pays 70 percent or more and that the plan had been proposed in good faith and was the debtor’s purported best effort. If the debtor’s best effort was not a five-year plan, the debtor may be denied a discharge. In re Ward, 456 BR 766 (Bankr ED Mich 2010). Thus, debtors must wait six years after receiving a Chapter 12 or Chapter 13 discharge to seek a discharge under Chapter 7. 11 USC 727(a)(9). However, it is important to keep in mind nondischargeable obligations like taxes, fraudulent debts, student loans, and domestic support obligations that are outlined in 11 USC 523. For more information regarding nondischargeable debts, see §§3.41–3.46. [4]


I. BACKGROUND

In December 1997, the Nehasils expressed interest in buying the Greniers’ house in Canton,
Michigan. They asked the Greniers if there were any noteworthy defects in the house, and the
Greniers reported none. The Nehasils purchased the property. They soon discovered a variety of
problems with the house, including water damage, rotting floors, insect infestation, faulty electrical Wiring, and fake water fixtures not hooked up to the household plumbing system. When they investigated further, the Nehasils learned they were not the first ones to face this predicament. [1]

The Greniers had previously sold the house to Hilda Maxwell, who had sued them upon learning of the house’s poor condition and had ultimately gotten her money back. The Nehasils took the same tack, and in April 2004 a Michigan jury found the Greniers liable for fraud, awarding $294,563.74 in damages and costs.[1]

The Greniers filed for bankruptcy. They first sought to file under Chapter 13, but the
bankruptcy court found them ineligible because their debts exceeded the statutory limit. See 11
U.S.C. § 109(e). They then tried Chapter 7, filing a petition with the bankruptcy court in December 2008.[1]

CREDITOR PETITIONS THJE COURT TO STOP THE DISCHARGE OF THE TORT SETTLMENT  CLAIM BASED ON FRAUD.

Two months later, the Nehasils filed a complaint in the bankruptcy court, seeking a declaration that the Greniers could not discharge the judgment against them because it stemmed from fraud. See 11 U.S.C. § 523(a)(2)(A).[1]

             A creditor or trustee must object to an improperly claimed exemption in writing. The objection must be filed with the court no later than 30 days after the meeting of creditors or 30 days after any amendment to the exemptions or within any extension given by the court. A request for an extension of the 30 days must be filed with the court before the expiration of the 30 days. The objecting party has the burden of proof as to the improperly claimed exemption. Bankruptcy Rule 4003. An objection to an exemption is governed by motion practice LBR 9014-1(a) (ED Mich) in the Eastern District of Michigan. See §§4.22–4.24. In the Western District of Michigan, after an objection to a claimed exemption is filed, the court will schedule a hearing to address the objection and any response thereto.[2]

The bankruptcy court agreed on collateral-estoppel grounds,
finding that the state-court fraud judgment entitled the Nehasils to summary judgment. The district court affirmed. In re Grenier, 430 B.R. 446 (E.D. Mich. 2010).
No. 10-2242 In re Grenier  [1]

II. THE LAW

THE BANKRUPTCY COURT HAS DEBTS THAT ARE NON DISCHARGABLE
At issue is a provision of the Bankruptcy Code that makes nondischargeable any debt for
money or property “obtained by . . . false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” 11 U.S.C. § 523(a)(2)(A). [1]

The Nehasils argue, and the courts below held, that this provision applies to the state-court judgment against the Greniers. We agree. [1]

There are 21 types of debts listed under 11 USC 523(a) that may not be discharged in a Chapter 7 case. Among the most important of these are the following:

• debts for taxes or customs duties (1) of a type that would be entitled to priority under section 507(a)(8), whether or not a claim was filed for such taxes, 11 USC 523(a)(1)(A); or (2) for which a tax return, if required, was not filed or was filed both after its due date and within two years prepetition, or (3) for which the debtor made a fraudulent return or willfully attempted to evade the tax, 11 USC 523(a)(1)
• debts (1) obtained by fraud, false pretenses, or a false representation, other than a false representation in writing concerning the financial condition of the debtor or an insider, 11 USC 523(a)(2); or (2) obtained by statements in writing regarding the financial condition of the debtor or an insider that were materially false and made with an intent to deceive and on which the creditor reasonably relied, 11 USC 523(a)(2)(B)
• debts not scheduled under section 521 in time to permit the creditor to file a proof of claim, or if the debt is of a type specified in paragraphs (2), (4) or (6) (or perhaps (15)) of section 523(a), in time to permit the creditor to file a timely request for a determination of the dischargeability of the debt, unless in each case the creditor otherwise had actual knowledge of the case, 11 USC 523(a)(3)
• debts for fraud or defalcation while acting in a fiduciary capacity, or for embezzlement or larceny, 11 USC 523(a)(4)
• debts for domestic support obligations, 11 USC 523(a)(5)
• debts for willful and malicious injury to another entity or to property of another entity, 11 USC 523(a)(6)
• debts for fines or penalties to governmental units, except for those that are compensatory for actual pecuniary loss, other than penalties relating to taxes that are themselves dischargeable or penalties imposed with respect to a transaction or event that occurred more than three years prepetition, 11 USC 523(a)(7)
• debts for student loans made or guaranteed by governmental units, and other educational loans that are qualified under IRC 221(d)(1) unless failure to discharge the debt would result in undue hardship to the debtor or the debtor’s dependents, 11 USC 523(a)(8)
• debts for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft while intoxicated, 11 USC 523(a)(9)
• debts that were or could have been scheduled in a prior bankruptcy case in which the debtor waived discharge or was denied a discharge, 11 USC 523(a)(10)
• debts for payment of an order of restitution under Title 18 of the United States Code, 11 USC 523(a)(13)
• debts incurred to pay a tax to the United States that would be nondischargeable under section 523(a)(1), 11 USC 523(a)(14)
• debts incurred to pay a tax to a governmental unit, other than the United States, that would be nondischargeable under section 523(a)(1), 11 USC 523(a)(14A)
• debts to a spouse, former spouse, or child of the debtor, other than those described in section 523(a)(5), incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree, or other order of a court of record or a determination made in accordance with state or territorial law by a governmental unit, 11 USC 523(a)(15)
• debts for certain types of loans owed to a pension, profit-sharing, stock bonus, or other plan established under IRC 401, 403, 408, 408A, 414, 457, or 501(c), 11 USC 523(a)(18)
• debts arising from a judgment, order, or settlement agreement based upon the debtor’s violation of certain federal securities laws, state securities laws, or regulations under federal or state securities laws, or for common-law fraud, deceit, or manipulation in connection with the purchase or sale of any security, 11 USC 523(a)(19)     [2]

HOW CAN CREDITORS ACT TO MAKE YOUR DEBT TO THEM NON DISCHARGABLE IN BANKRUPTCY?

To exclude a debt from discharge under this provision, a creditor must establish four things:
(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 Rembert, 141 F.3d 277, 280–81 (6th Cir. 1998).

DEFENDANT ARGUES THE STATE COURT STANDARD IS DIFFERENT THAN THE FEDERAL STANDARD.

The Greniers claim that the first requirement is missing here, reasoning that Michigan law has a different mental-state standard from the Bankruptcy Code. [1]

MICHIGAN TORT OF FRAUD CLAIM

While the state tort of fraud imposes liability on defendants who are reckless about the truth of the statements they make, the federal standard requires at least gross recklessness. [1]
Compare id. at 280 with Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich.
1976). As a result, the Greniers urge, the Michigan fraud judgment against them does not suffice
under § 523(a)(2)(A), because the Michigan jury might have found them liable based only on
recklessly false statements, not statements made with gross recklessness or knowledge of their
falsity. [1]


Michigan  Civil  Jury 128.01 Fraud Based on False Representation
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:

1. Defendant made a representation of [a material fact / material facts] .
2. The representation was false when it was made.
3. 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.
4. Defendant made the representation with the intent that plaintiff rely on it.
5. Plaintiff relied on the representation.
6. 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.
Note on Use
If more than one type of fraud is at issue, the final paragraph of this instruction must be revised to instruct the jury that the verdict will be for the defendant only if plaintiff fails to prove any of the types of fraud claimed.
This instruction should be accompanied by the definition of clear and convincing evidence in M Civ JI 16.01.
This instruction is intended to be used in a tort action for damages for fraud. It is not designed for use in other types of cases.
Comment
Candler v Heigho, 208 Mich 115; 175 NW 141 (1919); Blanksma v King, 172 Mich 666; 138 NW 236 (1912). Candler was overruled in part insofar as it purported to hold that all six traditional common-law elements of fraud must be proved in an innocent misrepresentation case. United States Fidelity & Guaranty Co v Black, 412 Mich 99, 116; 313 NW2d 77 (1981).
For a discussion of Michigan cases on the quantum of proof in fraud actions, see Disner v Westinghouse Elec Corp, 726 F2d 1106 (6th Cir 1984); but see Mina v General Star Indemnity Co, 218 Mich App 678; 555 NW2d 1 (1996).
History
M Civ JI 128.01 was added December 1994.




That argument might have some force if all we had to go on were the fact of the Greniers’
liability for fraud. But we have more. In finding the Greniers liable, the Michigan jury made
specific factual findings. It answered “yes” to the question whether the Greniers had “actual
knowledge” of the material facts about the condition of their home that they failed to disclose. R.24 (Bankr. E.D. Mich. No. 09-04351) Ex. C at 29. [1]

MICHIGAN COLLATERAL  ESTOPPLE

Michigan collateral-estoppel law, applicable here, see Migra v. Warren City Sch. Dist. Bd.
of Educ., 465 U.S. 75, 81 (1984), “bars the relitigation of issues previously decided when such issues are raised in a subsequent suit by the same parties.” Knoblauch v. Kenyon, 415 N.W.2d 286, 288 (Mich. App. 1987).  [1]

HOW CAN COLLATERAL ESTOPPLE BE USED
The party invoking collateral estoppel must show four things:
(1) the same parties were involved in both proceedings;  
(2) the issue was litigated and resolved in the first proceeding;  
(3) the party against whom the issue was decided in the first proceeding “had a full and
fair opportunity to litigate the issue”; and  
(4) it must be “clear[ ], definite[ ], and unequivocal[ ]”

from the record of the first proceeding how the issue was decided. People v. Gates, 452 N.W.2d
627, 630–31 (Mich. 1990). [1]

The Nehasils have shown all four, and accordingly the jury’s finding that
the Greniers knew of the defects in their home prevents them from relitigating the issue now.
Indeed, we have previously recognized that, if the state court record “invoke[s] the [defendants’]
knowledge of their misrepresentations,” as is true here, collateral estoppel may apply even if the
Bankruptcy Code’s gross-recklessness standard is higher than its counterpart in Michigan common law fraud. See In re Livingston, 372 F. App’x 613, 619 (6th Cir. 2010).[1]

NOT NECESSARY TO PROVE MICHIGAN AND FEDERAL STANDARDS ARE THE SAME

As in Livingston, we need not decide whether the Bankruptcy Code’s standard is identical to Michigan’s.

EXCHANGE OF MONEY NOT REQUIRED

The Greniers make one other argument: that the fraud exception does not apply because the
Nehasils did not show that the Greniers received any money from the fraud. Br. at 12–13; see
Rembert, 141 F.3d at 280 (creditor must show that “the debtor obtained money through a material misrepresentation”). But this claim, too, is undone by the Michigan verdict: the jury found that the Greniers’ misrepresentations and omissions were a proximate cause of the Nehasils’ decision to buy the house at the price they paid. R.24 (Bankr. E.D. Mich. No. 09-04351) Ex. C at 28–29.  [1]


There is no question that the Greniers obtained money from the Nehasils as a result of their fraud. [1]


As a result, we need not decide whether such a showing is required in the first place. Compare Rembert, 141 F.3d at 280, with Cohen v. de la Cruz, 523 U.S. 213, 215, 217–18 (1998).
Also unavailing is the Greniers’ appeal from the denial of their motion to dismiss for failure
to state a claim. Though the Nehasils’ complaint could have been more detailed, it made reference to and incorporated the state court judgment, providing sufficient notice to the Greniers of the nature of the fraud charge against them. See Fed. R. Civ. P. 9(b); Chesbrough v. VPA, P.C., 655 F.3d 461, 466 (6th Cir. 2011). [1]

III.

For these reasons, we affirm.

NOTE THE  COURT POST SAYS  filed 01/31/2012 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 12a0107n.06 No. 10-2242. Parts of this origional post has been modified for presentation here and should not be relied on with out the assistance of counsel.[trb]
---end---
[trb]CAPS ARE BY Terry Bankert , P49048, 1000 Beach St, Flint Mi 48503, 1-810-235-1970
[1]In re ROBERT M. GRENIER and GERTRUDE A. GRENIER, Debtors. CRAIG R. NEHASIL and DONNA E. NEHASIL, as Next Friend of Richard J. Nehasil, Timothy R. Nehasil and Christopher
P. Nehasil, Plaintiffs-Appellees, v. ROBERT M. GRENIER and GERTRUDE A. GRENIER,
Defendants-Appellants. ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MICHIGAN Before: BOGGS, ROGERS and SUTTON, Circuit Judges. SUTTON, Circuit Judge.  filed 01/31/2012 NOT RECOMMENDED FOR FULL-TEXT PUBLICATION File Name: 12a0107n.06 No. 10-2242

[2]
Handling Consumer and Small Business Bankruptcies in Michigan ch 3 (Richardo I. Kilpatrick et al eds, ICLE 2009), at http://www.icle.org/modules/books/chapter.aspx/?lib=bankruptcy&book=2009550820&chapter=03
(last updated 01/20/2012).


[3]
Michigan Civil Procedure ch 19 (Kathleen A. Lang et al eds, ICLE 1999), at http://www.icle.org/modules/books/chapter.aspx/?lib=litigation&book=1999555670&chapter=19
(last updated 01/20/2012).

[4]
http://www.icle.org/modules/repositories/mcivji/chap.aspx?Chapter=0&Section=26#128